A consumer must divide $250 between the consumption of product X (Oranges) and product Y (Bananas). 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 labeled 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 must divide $250 between the consumption of product X (Oranges) and product Y (Bananas). 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 labeled 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?

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Consumer Choice Theory

Section: Chapter Questions

Problem 14SQ

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