Suppose that a consumer is at an optimum consuming X and Y. If the price of X falls, then to get to a new equilibrium the consumer must

Question

Quizplus · Accepted Answer

When the price of X falls, the consumer can now purchase more X for the same amount of money. As X is now relatively cheaper than Y, the consumer would want to buy more of X and less of Y to reach a new equilibrium where the marginal utility of both goods is equal once again. Therefore, the consumer would purchase more X.

Suppose That a Consumer Is at an Optimum Consuming X