Question no. 5

 . A consumer consumes two goods X and Y. Explain what will happen if MUx/Px is greater than MUy/Py?

Ans: This situation implies that by spending a rupee more on good x the consumer get x greater MU then in case of good Y. accordingly, he will spend more on 'X' than Y. As consumption of X increases, MUx will fall. on the other hand as consumption of Y falls, MUy will rise. the consumer will stop buying more of X in place of Y only when MUx/Px  =  MUy/Py.

A consumer consumes two goods X and Y. Explain what will happen if MUy/Py is greater than MUx/Px?
Ans: This situation implies that by spending a rupee more on good y the consumer get y greater MU then in case of good X. accordingly, he will spend more on 'Y' than X. As consumption of Y increases, MUy will fall. on the other hand as consumption of X falls, MUx will rise. the consumer will stop buying more of Y in place of X only when MUy/Py  =  MUx/Px.