1. A consumer has $300 to spend on goods X and Y. The market prices of these two goods are Px = $15 and Py = $5. a. What is the market rate of substitution between goods X and Y? b. Illustrate the consumer's opportunity set in a carefully labeled diagram. c. Show how the consumer's opportunity set changes if income increases by $300. How does the $300 increase in income alter the market rate of substitution between goods X and Y? 2. A consumer is in equilibrium at point A in the accompanying figure. The price of good X is $5. a. What is the price of good Y? b. What is the consumer's income? c. At point A, how many units of good X does the consumer purchase?

d. Suppose the budget line changes so that the consumer achieves a new equilibrium at point B. What change in the economic environment led to this

new equilibrium? Is the consumer better off or worse off as a result of the price change?

Product Y A A C D F Product XProduct Y A 45 40 35 10 25 Product X 20