The prices of two goods X and Y are: P_x = Rs. 5 and P_y = Rs. 3, respectively. If a consumer spending his entire income on these two commodities is at a point on the budget constraint where MRS_xy (marginal rate of substitution of X for Y) is 3 : 1, then

A) the total utility of the consumer is being maximised at this point B) the total utility of the consumer will increase if he reallocates his expenditure leading to an increase in the amount of X and a reduction in the amount of Y C) the total utility of the consumer will increase if he reduces his expenditure on both the commodities D) the total utility of the consumer will increase if he reallocates his expenditure leading to an increase in the amount of Y and a reduction in the amount of X

Answer & Solution

Correct Answer: Option D

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The prices of two goods X and Y are Px =...

The prices of two goods X and Y are: Px = Rs. 5 and Py = Rs. 3, respectively. If a consumer spending his entire income on these two commodities is at a point on the budget constraint where MRSxy (marginal rate of substitution of X for Y) is 3 : 1, then

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The prices of two goods X and Y are: P_x = Rs. 5 and P_y = Rs. 3, respectively. If a consumer spending his entire income on these two commodities is at a point on the budget constraint where MRS_xy (marginal rate of substitution of X for Y) is 3 : 1, then