Question

Suppose that the MU/P ratio for good X is the same as for good Y: 12 utils per dollar. If the price of good X then rises to $2 from $1, a consumer who seeks to maintain consumer equilibrium will buy more of good __________ until the marginal utility of that good falls to __________ utils.

Answer 1

Answer:Suppose that the MU/P ratio for good X is the same as for good Y: 12 utils per dollar. If the price of good X then rises to $2 from $1, a consumer who seeks to maintain consumer equilibrium will buy more of good Y until the marginal utility of that good falls to 6 utils.

Step-by-step explanation:

At the start both Y and X have the same MP ratio of 12 utils per dollar, but as the price of x double's (from $1 to $2) its utils per dollar half's (from 12 to 6)

12/1=12

12/2=6

After this price change the consumer will buy more of good y because they will get more marginal utility per dollar from y, until the MU/P ratio of y drops to 6, at this point there will be consumer equilibrium as both x and y will be providing the same marginal utility per dollar.