Question
Explain the condition of consumer's equilibrium in case of two commodities.

Answer

In case of two commodities, the consumer will be in equilibrium when following condition is satisfied:

$\frac{\text{MU}_\text{X}}{\text{P}_\text{X}}=\frac{\text{MU}_\text{Y}}{\text{P}_\text{Y}}=\text{MU}_\text{M}.$

Where, MUX and MUY = Marginal Utilities of commodities X and Y, respectively

MUM = Marginal Utility of money

PX and Py = Prices of commodities X and Y, respectively

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