A consumer has $300 to spend on goods X and Y. The market prices of these two goods are Px = $15 and Py = $5.Draw the budget constraint for X and Y.Suppose the income increases by $300. How does this increase in income affect the budget line and the market rate of substitution between goods X and Y? Draw a shift on the same graph of what happens to the budget constraint line when the price of good Y increases to $10. How does this change in the price of good X affect the market rate of substitution between goods X and Y?

(1) A budget constraint is an economic word that refers to the total amount of products you can…

Answered: A consumer has $300 to spend on goods X…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A consumer has $300 to spend on goods X and Y. The market prices of these two goods are Px = $15 and Py = $5.

Draw the budget constraint for X and Y.
Suppose the income increases by $300. How does this increase in income affect the budget line and the market rate of substitution between goods X and Y? Draw a shift on the same graph of what happens to the budget constraint line when the price of good Y increases to $10. How does this change in the price of good X affect the market rate of substitution between goods X and Y?

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