Question
A consumer must divide $600 between the consumption of product X and product Y . The relevant market prices are P x = $10 and
A consumer must divide $600 between the consumption of product X and product Y. The relevant market prices are Px = $10 and Py = $40. a. Write the equation for the consumer's budget line. Instruction: If the coefficient on X is a negative number, enter a negative number () as your response. Y = + X b. In the graph below, illustrate the consumer's opportunity set. Instruction: Use the tool provided 'Original Budget Set' to graph the opportunity set from where X = 0 to where Y = 0.
c. In the same graph, Illustrate the consumer's opportunity set when the price of good X increases to $20. Instruction: Use the tool provided 'Budget Set with Px = $20' to graph the opportunity set from where X = 0 to where Y = 0. How does this change alter the market rate of substitution between goods X and Y?
multiple choice
- It changes from -4 to -2.
- It changes from -0.5 to -0.25.
- It changes from -0.25 to -0.5.
- It changes from -2 to -4.
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