A consumer is in equilibrium with two goods. The price of X now rises. What happens first?

MUₓ ÷ Pₓ rises, so he buys more of XCorrect answerYour answerMUₓ ÷ Pₓ falls below MUᵧ ÷ Pᵧ, so he buys less of XCorrect answerYour answerNothing changes, because MU does not depend on priceCorrect answerYour answerHe buys less of YCorrect answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer B

Correct answer: B

A higher Pₓ lowers the utility per rupee from X.
X is now a worse use of money than Y, so he cuts his purchase of X: the law of demand.

Concept: Effect of a price rise on equilibrium
Typical timeTypical: 100 s
Your timeYours: —

The rule this testsEquilibrium with two goods

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Ten questions from Utility & Consumer's Equilibrium, at your own pace.

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Ten questions from Utility & Consumer's Equilibrium, at your own pace.

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A consumer is in equilibrium with two goods. The price of X now rises. What happens first?

Explanation