Consider the following information for a consumer who is trying to allocate her income between goods X and Y so as to maximize utility. The price of...
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Consider the following information for a consumer who is trying to allocate her income between goods X and Y so as

to maximize utility. The price of X is $2 and the price of Y is $1 per unit. When all income is spent, the marginal utility of the last unit of X is 20 and the marginal utility of the last unit of Y is 16.

 

1.     Why is the consumer not in equilibrium?

2.     To increase utility, which good should this consumer consume more of and which less of?

Top Answer

1) The consumer is not in equilibrium as MUx/Px<MUy/Py. So,... View the full answer

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Other Answers

a) because marginal utility of dollar... View the full answer

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