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CBSE Class 12-commerce Answered

 A consumer consumes only two goods, each priced at Rs 2 per unit. If the consumer chooses a combination of the two goods with Marginal Rate of Substitution equal to 2, is the consumer in equilibrium? Why or Why not? What will a rational consumer do in this situation? Explain
Asked by ss919101 | 24 Mar, 2019, 08:19: PM
answered-by-expert Expert Answer

Px=2
Py=2

MRSxy=2

M R S x y equals fraction numerator P x over denominator P y end fraction

2 equals 2 over 2

= 1

Here MRSxy > px/ py

2>2/2

Now the consumer will consume more units of good X so that MRSxy declines and becomes equal to price to achieve consumer equilibrium.

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