Consumer S Equilibrium

To find the equilibrium price of the other good, we need to understand the concept of Marginal Rate of Substitution (MRS) and consumer equilibrium in the context of two goods. Consumer equilibrium is achieved when the consumer maximizes utility given their budget constraint. This condition is mathematically represented as follows:

where:

• MRS is the Marginal Rate of Substitution between the two goods. In this case, .
• P₁ is the price of the first good which is given as Rs 30.
• P₂ is the price of the second good, which we need to find.

We can rearrange the equilibrium condition to express P₂:

Substituting the known values into this equation:

Thus, the price of the other good for the consumer to be in equilibrium is Rs 10.

To appropriately match the items from List-I with List-II, we need to understand each concept:

• Consumer equilibrium (A) is achieved when a consumer maximizes their satisfaction with their income. This occurs when the Marginal Rate of Substitution (MRS) equals the ratio of prices of the goods, thus matching with (I) MRS = Ratio of prices.
• Necessity goods (B) refer to goods for which demand remains relatively constant despite changes in price. This corresponds to (III) Inelastic demand as the quantity demanded does not change significantly with price changes.
• Total expenditure decreases with an increase in price (C) describes a situation where the percentage change in price is smaller than the percentage change in quantity demanded, which is associated with (IV) Elastic demand.
• A Rectangular hyperbola demand curve (D) signifies a scenario where total expenditure remains constant irrespective of price changes, linking it to (II) Unit elastic demand.

Thus, the correct matching of List-I with List-II is: (A)-(I), (B)-(III), (C)-(IV), (D)-(II)