W3_Practice_Problem_1

# W3_Practice_Problem_1 - Complete Problem 1 2 3 5 and 6(p...

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Complete Problem # 1, 2, 3, 5, and 6 (p. 147-148). 1) A consumer has \$400 to spend on goods X and Y… Px: \$10 Py: \$40 a) What is the market rate of substitution -0.25 =-10/40 -0.25 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 \$400. How does the \$400 increase in income alter the market rate of subsitution 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? Slope: =-(20/20) =-1 Good x = good y Price of Good Y: \$5 b) What is the consumer's income? Max Units: 20 Price of good X: \$5 Consumer's Income: \$100 c) At point A, how many units of good X does the consumer purchase Max Units: 20 Price of good X: \$5 Point A on Y: 10 Units of X: 10 d) Suppose the budget line changes so that the consumer achieves a new equilibrium at point B… 3) A consumer must divide \$250 between the consumption of product X and product Y… a) Write the equation for the consumer's budget line 5X + 10Y = 250

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