explain the economic value of the folloing:-
MUX by PX is equal to MUM when ''X'' happen to be a domestic fuel LPG and PX is lowered by the way os subsidy by the government.
When price of X (LPG) falls due to subsidy granted by the government, then the equilibrium of consumer gets disturbed,That is,
Now, to reattain the equilibrium, consumer will increase the consumption of LPG, which in turn, would result in a fall in marginal utility of LPG. So, MUx will fall
and equlibrium equality will get reestablished ,that is,
Hence, Consumer's equilibrium gets shifted to a higher level of satisfaction due to subsidies introduced by the government.
Now, to reattain the equilibrium, consumer will increase the consumption of LPG, which in turn, would result in a fall in marginal utility of LPG. So, MUx will fall
and equlibrium equality will get reestablished ,that is,
Hence, Consumer's equilibrium gets shifted to a higher level of satisfaction due to subsidies introduced by the government.