Now his basket: . Total spend = ₹35. He still has ₹15 left, but the next unit of either gives only 1 util per rupee, which is less than the value of money. He stops.
If MUx/Px > MUy/Py, the consumer gets more satisfaction per rupee from X. They will buy more of X, causing MUx to fall, and less of Y, causing MUy to rise, until the ratios equalize. They are in equilibrium when this ratio is equal to the (MUₘ). consumer equilibrium class 11 notes free
The ratio of prices of the two goods (
MRSXY=ΔYΔXMRS sub cap X cap Y end-sub equals the fraction with numerator cap delta cap Y and denominator cap delta cap X end-fraction The Budget Line Now his basket:
The consumer reaches equilibrium at the exact point where the budget line is tangent to the highest possible indifference curve. He stops
Calculate MU/P for each unit: