Q.A consumer consumes only 2 goods X and Y and is in equilibrium.Price of X rises.explain the reaction of the consumer with the help of utility analysis.wat is the answer for this question
A consumer consuming only two commodities X and Y attains equilibrium at that level where,
Marginal Utility of a Rupee spent on commodity X = Marginal Utility of a Rupee spent on commodity Y = Marginal Utility of Money.
However, when the price of commodity x rises, the ratio of marginal utility to price of X becomes lower than that of Y, that is
Whenever this happens, the consumer will rearrange his consumption bundles in a way such that the equality is restored. He would decrease his consumption of commodity X . With the decrease in the consumption of commodity X , marginal utility of X rises. As a result, the ratio of marginal utility to price of X rises. The consumer would continue decreasing the consumption of commodity X till the equality between the ratio of marginal utility to price in case of X and Y is reached.
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