a) If MRSXY > PX/PY, it means that the consumer is willing to pay more for X than the price prevailing in the market. As a result, the consumer buys more of X. As a result, MRS falls till it becomes equal to the ratio of prices and the equilibrium is established.

What should the consumer do if MUx PX MUy PY?

If MUx/Px > MUy/Py then it means that satisfaction of the consumer derives from spending a rupee on Good X greater than the satisfaction derived from spending a rupee on Good Y. The consumer will reallocate his income by substituting Good X for Good y.

What is it called when Mrsxy PX PY the equilibrium solution?

In a situation when PX and PY are constant, and MRSXY > PXPY , the consumer will get greater satisfaction than when MRSXY = PXPY .

What does PX and PY mean?

Px/Py tells you how much units of Y you are FORCED to give away for certain units of X. The MRS tells you how much units of Y you are WILLING to give away for certain units of X. So lets say Px=5 and Py=1. Px/Py=5. This would mean that to have an additional unit of X, you would have to give away 5 units of Y.

What does MUx PX MUy PY mean?

MUx/Px = MUy/Py, where MUx is the marginal utility derived from good x, Px is the price of good x, MUy is the marginal utility of good y and Py is the price of good y. Only when the ratio of MU/P is equal for all goods is a consumer maximizing his total utility.

What is in difference curve?

Definition: An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility. In other words, point A gives as much utility as point B to the individual. The consumer will be satisfied at any point along the curve assuming that other things are constant.

Why is Mrs equal to price ratio?

In other words, the MRS (the slope of the indifference curve) must be equal to the price ratio (the slope of the budget line). The reason is that otherwise the consumer could reach a higher indifference curve within the same budget set by altering the chosen bundle.

Does PY and PX have same energy?

There is always a energy difference between head on overlap and sidewise overlap that is why Pz orbital molecular orbital have different energy than Px and Py molecular orbital.

What does MUx MUy mean?

marginal utility
consumer by the marginal utility of X, MUx. Similarly, an additional unit of Y. increases the level of satisfaction of a consumer by the marginal utility of Y, MUy. The marginal rate of substitution is equal to the ratio of the marginal.

What is the relationship of quantity demanded to price?

Thus, the price of a product and the quantity demanded for that product have an inverse relationship, as stated in the law of demand. An inverse relationship means that higher prices result in lower quantity demand and lower prices result in higher quantity demand.