Question 57
MediumOriginal questionThe price of X is ₹4 and the price of Y is ₹2. A consumer's marginal utilities are:
| Units | 1 | 2 | 3 | 4 | 5 |
|---|---|---|---|---|---|
| MU of X (utils) | 20 | 16 | 12 | 8 | 4 |
| MU of Y (utils) | 12 | 10 | 8 | 6 | 4 |
With an income of ₹20, which combination puts the consumer in equilibrium?
Show the answer and explanation
CorrectNot quiteAnswer D
Correct answer: D
Explanation
MU per rupee for X: 20/4, 16/4, 12/4, … = 5, 4, 3, 2, 1. For Y: 12/2, 10/2, 8/2, … = 6, 5, 4, 3, 2.
At 3 X and 4 Y both ratios are 3, and spending = 3 × ₹4 + 4 × ₹2 = ₹20, the whole income.
Worth noting
2 X and 3 Y also equalise the ratios (at 4) but spend only ₹14, leaving income unspent.
- Concept
- Two-good equilibrium from a table
- Typical timeTypical
- 70 s
- Your timeYours
- —
Practise this chapter →
Ten questions from Utility & Consumer's Equilibrium, at your own pace.