Question 72
HardOriginal questionThe price of X is ₹4 and the price of Y has risen to ₹4. 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 ₹16, what is the equilibrium combination?
Show the answer and explanation
CorrectNot quiteAnswer B
Correct answer: B
Explanation
With both prices at ₹4, X's ratios are 5, 4, 3, 2, 1 and Y's are 3, 2.5, 2, 1.5, 1.
At 3 X and 1 Y both ratios are 3, and spending = 3 × ₹4 + 1 × ₹4 = ₹16.
Worth noting
Equal quantities (2 and 2) spend ₹16 too, but leave X at 4 utils per rupee against Y's 2.5.
- Concept
- Equilibrium after a price change
- Typical timeTypical
- 100 s
- Your timeYours
- —
Practise this chapter →
Ten questions from Utility & Consumer's Equilibrium, at your own pace.