Q6 of 50 Page 1

A consumer consumes only two goods X and Y. Marginal utilities of X and Y are 3 and 4 respectively. Prices of X and Y are ` 4 per unit each. Is consumer in equilibrium? What will be the further reaction of the consumer ? Give reasons.

No, the consumer will not be in equilibrium because

MUx/Px <MUy/Py


This means: �< 4/4


The per rupee marginal utility of good X is lower than the per rupee marginal utility of good Y, the consumer will now buy less of good X and more of good Y.


This will continue till marginal utility of good X rises and the marginal utility of good Y enough so that:


MUx/Px = MUy/Py


More from this chapter

All 50 →
4

The differentiated product is a characteristic of (Choose the correct alternative) :

(a) Monopolistic competition only


(b) Oligopoly only


(c) Both monopolistic competition and oligopoly


(d) Monopoly

 5

Demand curve of a firm is perfectly elastic under : (Choose the correct alternative)

(a) Perfect competition


(b) Monopoly


(c) Monopolistic competition


(d) Oligopoly

 7

What will be the effect of a 10 per cent rise in the price of a good on its demand if the price elasticity of demand is (a) Zero, (b) 21, (c) 22?

 8

What is the minimum price ceiling? Explain its implications.

OR


If the prevailing market price is above the equilibrium price, explain its chain of effects.