Read the report carefully and answer the questions based on the report:

In a situation when MRS_XY > P_X / P_Y, the consumer would react by.

Increasing the consumption of Good X.

The correct answer is Option (3) → Increasing the consumption of Good X.

In consumer theory, the condition for consumer equilibrium is: MRS_{XY =} P_X / P_Y,

Where:

• MRSXY is the Marginal Rate of Substitution of Good X for Good Y (the rate at which the consumer is willing to substitute Good Y for Good X),

• PX/PY is the price ratio (the rate at which the market allows substitution).

Given, MRS_XY > P_X / P_Y, This means:

• The consumer values Good X more highly than the market does.

• So, the consumer is willing to give up more of Good Y to get one more unit of Good X than is actually required by the market.

• To maximize satisfaction, the consumer will:

  • Increase consumption of Good X

  • Reduce consumption of Good Y

• Because this will bring MRS down toward the price ratio, moving the consumer closer to equilibrium.

Note: While both increasing the consumption of Good X and decreasing the consumption of Good Y move the consumer toward equilibrium when MRSXY > PX/PY, standard economic reasoning emphasizes the active adjustment toward the more preferred good — in this case, Good X. Therefore, the preferred answer in such multiple-choice questions is “increasing the consumption of Good X.” Decreasing consumption of Good Y is a logical consequence, but not the primary action. Thus, Option 4 is not incorrect in reasoning, but Option 3 more directly represents the consumer's response to the disequilibrium.