2. Suppose a consumer has a fixed budget of $200, and she spends it all on two goods, x1 and x2. The price of x, is $40 per unit and the price of x2 is $20 per unit; x, and x2 are normal goods. (a) Draw and label the consumer's budget constraint, with x, 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 con- sumption bundle? Explain what you your answer means. (c) Suppose the price of x2 increases to $25 per unit. Graphically show the effect of this price change on the consumer's budget constraint.

2. Suppose a consumer has a fixed budget of $200, and she spends it all on two goods, x1 and x2. The price of x, is $40 per unit and the price of x2 is $20 per unit; x, and x2 are normal goods. (a) Draw and label the consumer's budget constraint, with x, 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 con- sumption bundle? Explain what you your answer means. (c) Suppose the price of x2 increases to $25 per unit. Graphically show the effect of this price change on the consumer's budget constraint.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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(D)