The law of equi-marginal utility states that the consumer will distribute his money income between the goods in such a way that the utility derived from the last rupee spent on each good is equal.
Units of X |
MU of X |
MUx/Px |
Units of Y |
MU of Y |
MUy/Py |
1 |
16 |
8 |
1 |
11 |
11 |
2 |
14 |
7 |
2 |
10 |
10 |
3 |
12 |
6 |
3 |
9 |
9 |
4 |
10 |
5 |
4 |
8 |
8 |
5 |
8 |
4 |
5 |
7 |
7 |
6 |
6 |
3 |
6 |
6 |
6 |
The equilibrium condition is satisfied when the consumer consumes the goods in the combination of 1 unit of Good X and 4 units of Good Y.
At this level of consumption, the total expenditure of the consumer is :
(1 × Rs.2) + (4 × Rs. 1) = 2 + 4 = 6 This is attainable also in his given income of Rs. 12.