Sita and Geeta are two close friends and both are graduate working women. Sita is an economic graduate and doing research in economics while Geeta is a customer relation manager in a multinational company. In 1st January, 2023 both the friends decide to go out for a dinner to celebrate new year. Geeta is fond of Ice-Cream (Orange bar) and has decided to buy from a street vendor ₹10/unit after discount. She has also offered to Sita but Sita denied as she was having throat infection.

Geeta has requested to Sita to apply economics principles and to respond, when she should be stopped consuming more ice-cream. On consuming 3rd unit of Ice-cream, Geeta has obtained additional satisfaction of 18 units while the marginal utility of a rupee is 2 utils.

If the price of ice-cream (Orange bar) falls from ₹10/ unit to ₹8 /unit, what change you will observe in the behaviour of Geeta if she is a rational consumer.

Geeta will be in surplus, hence will consume more.

The correct answer is option (1) : Geeta will be in surplus, hence will consume more.

Geeta's rational choice as a consumer is guided by maximizing her utility given her income and the prices of goods. Here’s how the change in price would affect her:

• Original Marginal Utility per Rupee: Initially, Geeta's marginal utility per rupee spent on ice-cream was 2 utils. This means she gained 2 utils of satisfaction for each rupee spent on ice-cream.

• Change in Price: With the price of ice-cream falling from ₹10/unit to ₹8/unit, the price per unit of ice-cream decreases.

• Impact on Consumption: As a rational consumer, Geeta will compare the new price with her marginal utility per rupee. Since the price has decreased, the marginal utility per rupee spent on ice-cream increases (assuming the marginal utility of consumption remains relatively constant).

Therefore, in response to the price decrease:  Geeta will consume more. This is because with a lower price, each unit of ice-cream now provides more utility per rupee spent compared to before. As long as Geeta continues to derive positive utility (satisfaction) from consuming additional units of ice-cream, she will increase her consumption until the marginal utility per rupee spent equals the marginal utility of consuming additional units of ice-cream. Thus, Geeta would consume more ice-cream after the price decreases to ₹8/unit.