Q.A consumer buying two goods P and Q, priced Rs. 5 and Rs. 3 respectively, currently consumes a combination at which MU of P = 25 and MU of Q = 12. Is the consumer in equilibrium? If not, explain which good the consumer should buy more of.

Equilibrium under the equi-marginal law requires marginal utility per rupee to be equal across goods; here it is not.

Step 1 — Compute marginal utility per rupee for each good.

MU_P / P_P = 25 / 5 = 5

MU_Q / P_Q = 12 / 3 = 4

Step 2 — Compare the ratios. Since MU_P/P_P = 5 is greater than MU_Q/P_Q = 4, the last rupee spent on P yields more satisfaction than the last rupee spent on Q. The equi-marginal condition (MU_P/P_P = MU_Q/P_Q) is therefore NOT satisfied, so the consumer is not in equilibrium.

Step 3 — Direction of adjustment. The consumer should buy MORE of P and LESS of Q. As consumption of P rises, its marginal utility MU_P falls (by the Law of Diminishing Marginal Utility), pulling MU_P/P_P down; as consumption of Q falls, MU_Q rises, pulling MU_Q/P_Q up. The consumer should keep reallocating spending in this direction until the two ratios meet at a common value, at which point total utility is maximised. …

A common mistake is concluding the consumer should buy more of Q because its price is lower — price alone does not determine the direction of adjustmen …