Person A and B both have the same income, and there are only two goods in...

Person A and B both have the same income, and there are only two goods in the market: good X has the price of $6, good Y has the price of $4. Considering A and B may have different bundles for purchasing good X and Y, but they are on the same budget line with the same MRT and MRS, will their consumer surplus always be the same? or does it depend on the bundles?

Expert Solution

Both have same income , prices are same for both person . So they are no same budget line , slope of budget line is price ratio which is same . But utility is mazimized only at a single bundle where Marginal rate of substitution ( slope of indifference curve ) is equal to slope of budget line (tangency condition ) . The optimal bundle is unique and only one for a budget line and indifference curve . Since both A and B face the same budget line and indifference curve so their optimal bundle should be same .

A and B may have different bundles for purchasing good X and Y, so their consumer surplus will not be same . Consumer surplus depends on marginal utility . So consumer surplus depends on the bundles purchased .

Rahul Sunny answered 2 years ago

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