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in Economics by (79.0k points)

A consumer consumes goods X and Y. Given below is his marginal utility schedule for goods X and Y. Suppose the price of X is Rs. 2, Y is Rs. 1 and income Rs. 12, State the law of Equimarginal utility and explain how the consumer will attain equilibrium.

Units 1 2 3 4 5 6
MUX 16 14 12 10 8 6
MUY 11 10 9 8 7 6

1 Answer

+1 vote
by (76.3k points)
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Best answer

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.

by (10 points)
This answer is wrong since it does not abide by the 2nd condition for equilibrium I.e. the consumer must spend his entire income on the two commodities. The right answer must be 6 units of x and 6 units of y because it uses the entire income.

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