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Unformatted text preview: Ginger reaches exactly the same indifference curve as before. The new optimal bundle (x,y) must be such that: 16000 and , 240 8 2 y x y x p x . The tangency condition now implies that 8 2 x p x y that is, . 16 y x p x Substituting this into the budget constraint we find that y =10. Using the condition 16000 2 y x , we find that x = 40. Finally, substituting the values of x and y back into the budget constraint, we can see that 240 ) 10 ( 8 40 x p , or p x =4. Therefore, if the price of y were to increase to $8, Ginger would need the price of x to decrease to $4 in order to be exactly as well off as before....
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This note was uploaded on 05/11/2011 for the course ECON 301 taught by Professor Sheng during the Spring '11 term at ITT Tech Pittsburgh.
- Spring '11