Question
A consumer must divide $ 250 between the consumption of product X and product Y. The relevant market prices are PX = 5 and PY
A consumer must divide $ 250 between the consumption of product X and product Y. The relevant market prices are PX = 5 and PY = 10.a) Write the equation for the consumer's budget line.b) Illustrate the consumer's opportunity set in a carefully labelled diagram.c) Show how the consumer's opportunity set changes when the price of good X increases to $10. How does this change alter the market rate of substitution between goods X and Y?A consumer is in equilibrium at point A in the illustration below. 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 atpoint B. What change in the economic environment might have led to this new equilibrium? Is the consumer better off or worse off as a result of the price change?
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