CA Foundation P4 · Chapter 2 · Question 10 of 15
A consumer spends her entire income on goods X and Y. Px = Rs. 6, Py = Rs. 5, and at her current purchases MUx = 30 utils and MUy = 20 utils. To maximise satisfaction she should:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Buy more of X and less of Y
Explanation
Equilibrium requires MUx/Px = MUy/Py. Here MUx/Px = 30/6 = 5 utils per rupee and MUy/Py = 20/5 = 4 utils per rupee. The last rupee spent on X yields more, so she should shift spending towards X; MUx will fall and MUy will rise until the ratios are equal. With income fully spent she cannot buy more of both.
More Theory of Demand and Supply MCQs
- Q12An indifference curve is normally convex to the origin because of:
- Q13A consumer has an income of Rs. 600 to spend on goods X (Rs. 20 each) and Y (Rs. 30 each). If her income and both prices are doubled, her…
- Q14When the price of a good rises from Rs. 40 to Rs. 50, quantity supplied rises from 200 units to 260 units. Price elasticity of supply…
- Q15A straight-line supply curve that passes through the origin has a price elasticity of supply:
- Q1The law of demand states that, other things remaining constant: