The income of a consumer is spent by him on two goods X and Y. The marginal utility of the goods at the present level of consumption are equal to each other. However, the price of good X is double that of good Y. The consumer, in order to attain equilibrium, will

Increase the consumption of Y and decrease the consumption of X.

The correct answer is Option (2) → Increase the consumption of Y and decrease the consumption of X.

According to the Law of Equi-Marginal Utility, a consumer attains equilibrium when:

$MU_X /P_X$ = $MU_Y /P_Y$

where ​$MU_X$, $MU_Y$ are marginal utilities, and Px and Py are prices of goods X and Y respectively.​

Given

$MU_X$=$MU_Y$

Px = 2Py

$MU_Y /2P_Y$ = $MU_Y /P_Y$

Since the denominator on the left side (2Py​) is greater than the denominator on the right side (Py​), the fraction on the left must be smaller.

$MU_X /P_X$ < $MU_Y /P_Y$

The consumer is getting less marginal utility per rupee spent on good X compared to good Y. To maximize total utility, the consumer should shift spending from the good that gives less utility per rupee (Good X) to the good that gives more utility per rupee (Good Y).

• Increase consumption of Y: As the consumer buys more Y, the ${\text{MU}}^y$ will fall (due to the Law of Diminishing Marginal Utility).

• Decrease consumption of X: As the consumer buys less X, the ${\text{MU}}^x$ will rise.

• Therefore, the consumer will Increase the consumption of Y and decrease the consumption of X.