- A consumer has $300 to spend on goods X and Y. The market prices of these two goods are Px = $15 and Py = $5. (LO2)
What is the market rate of substitution between goods X and Y?
Illustrate the consumer’s opportunity set in a carefully labeled diagram.
Show how the consumer’s opportunity set changes if income increases by $300. How does the $300 increase in income alter the market rate of substitution between goods X and Y?
2.A consumer must divide $600 between the consumption of product X and product Y. The relevant market prices are Px = $10 and Py = $40. (LO2)
Write the equation for the consumer’s budget line.
Illustrate the consumer’s opportunity set in a carefully labeled diagram.
Show how the consumer’s opportunity set changes when the price of good X increases to $20. How does this change alter the market rate of substitution between goods X and Y?
Sample Solution