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Unformatted text preview: y + 1)/ x = 2. His budget constraint is 2 x + y = 10. Solve these two equations to find that x = 11/4 and y = 9/2. If his income doubles and prices stay unchanged, his demand for both goods does not double. A quick way to see this is to note that if quantities of both goods doubled, the MRS would not stay the same and hence would not equal the price ratio, which has stayed constant. 2. ANS: 3. ANS: MRS = -(y+4)/(x+1) His marginal rate of substitution at the bundle (0,6) is -10. MRS = - Px/Py = - Px when Py=1 If the price of x is $10 or greater, he will choose that corner where he does not consume any x....
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This note was uploaded on 01/26/2010 for the course ECONOMICS EC212 taught by Professor Yu during the Spring '08 term at Mt. Holyoke.
- Spring '08