Chapter 7.2, Problem 1ST

Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406

Chapter
Section

Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406
Textbook Problem

Alessandro purchases two goods, X and Y, and the utility gained for the last unit purchased of each is 16 utils and 23 utils, respectively. The prices of X and Y are $1 and$1.75, respectively. Is Alessandro in consumer equilibrium? Explain your answer.

To determine

Identify the consumer equilibrium.

Explanation

According to the utility maximizing rule, in a two good world, the consumer equilibrium occurs at the point where the marginal utility–price ratio for one of the goods is equal to the ratio for the other good. It can be represented as follows:

MUXPX=MUYPY (1)

Here,

MUX is 16.

MUY is 23

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