1. X1 and x2. The price of x, is $80 per unit and the price of x2 is $40 per unit; x1 and x2 are normal goods. Suppose a consumer has a fixed budget of $400. She spends it all on two goods, (a) Draw and label the consumer's budget constraint, with x1 on the horizontal axis and x2 on the vertical axis. (b) What is the value of the consumer's marginal rate of substitution at her optimal consumption bundle? (e) Suppose the price of x2 increases to $50 per unit. Show the effect of this nrice change on the consumer's budget constraint drawn in part (a).

1. X1 and x2. The price of x, is $80 per unit and the price of x2 is $40 per unit; x1 and x2 are normal goods. Suppose a consumer has a fixed budget of $400. She spends it all on two goods, (a) Draw and label the consumer's budget constraint, with x1 on the horizontal axis and x2 on the vertical axis. (b) What is the value of the consumer's marginal rate of substitution at her optimal consumption bundle? (e) Suppose the price of x2 increases to $50 per unit. Show the effect of this nrice change on the consumer's budget constraint drawn in part (a).

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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