Theory of consumer behaviour — Economics STD 12 Humanities & Commerce — Question

1. In case of a single commodity:

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

Or $\text{MU}_\text{X}=\text{P}_\text{X}$

$[\text{when }\text{MU}_\text{M}=1]$

2. In case of two commodities:

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

Or MU_X = MU_Y [when MU_M = 1 and P_X = P_Y = 1]

Where,

MU_X = Marginal Utility of commodity

MU_Y = Marginal Utility of commodity Y

P_X = Price of commodity X

P_Y = Price of commodity Y

MU_M = Marginal Utility of money

Assumptions:

1. Marginal Utility of money and price of commodities remain constant.
2. Law of Diminishing Marginal Utility must hold true, implying that Marginal Utility must decline as more of a commodity is consumed.