A consumer has an original income M to spend on goods X and Y. The market price of these two goods are Px=$10 and Py=$25. Based on the information given in the graph above: 1. Determine the consumer income M. 2. Determine the market rate of substitution between goods x and y? give an interpretation of your answer. Now assumer that the consumer income increases to a new level M' but the prices stay the same. Based on the information given in the graph above: 3. Determine the increased income M'. 4. Does the increase in the consumer income increase the market rate of substitution? Explain your answer.
A consumer has an original income M to spend on goods X and Y. The market price of these two goods are Px=$10 and Py=$25. Based on the information given in the graph above: 1. Determine the consumer income M. 2. Determine the market rate of substitution between goods x and y? give an interpretation of your answer. Now assumer that the consumer income increases to a new level M' but the prices stay the same. Based on the information given in the graph above: 3. Determine the increased income M'. 4. Does the increase in the consumer income increase the market rate of substitution? Explain your answer.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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A consumer has an original income M to spend on goods X and Y. The market
1. Determine the consumer income M.
2. Determine the market rate of substitution between goods x and y? give an interpretation of your answer.
Now assumer that the consumer income increases to a new level M' but the prices stay the same. Based on the information given in the graph above:
3. Determine the increased income M'.
4. Does the increase in the consumer income increase the market rate of substitution? Explain your answer.
Transcribed Image Text:Good Y
48
20
Opportunity Set
50
Original
Increased
Income
120
Good X
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