C. Given the following indifference curves, the budget and the prices of goods X and Y, at what point is the optimal choice? Explain your answer. d. Suppose that the budget doubles or increases to PHP 1,000, and all other factors remain constant, what happen to the budget line? How about the new optimal choice? Explain your answer.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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NOTE: Answer only the d and e
3. Nathaniel must divide PHP 500 between the consumption of product X and product Y. The relevant market prices
are Px=50 and P=20.
a. Write the equation for the consumer's budget line. Interpret the equation.
b. Illustrate the consumer's opportunity set in a carefully labeled diagram, where X lies on the x-axis while Y lies
on the y-axis. Interpret the consumer's opportunity set.
c. Given the following indifference curves, the budget and the prices of goods X and Y, at what point is the
optimal choice? Explain your answer.
d. Suppose that the budget doubles or increases to PHP 1,000, and all other factors remain constant, what
happen to the budget line? How about the new optimal choice? Explain your answer.
e. Suppose that the price of good Y decreases from PHP 50 to 25 and all other factors remain constant, what
happen to the budget line? How about the new optimal choice? Explain your answer.
Good Y
40
35
30.
25
20
15
10
2
4
6
10
12 14
16 18 20 22
24 26
28
30
Good X
Transcribed Image Text:3. Nathaniel must divide PHP 500 between the consumption of product X and product Y. The relevant market prices are Px=50 and P=20. a. Write the equation for the consumer's budget line. Interpret the equation. b. Illustrate the consumer's opportunity set in a carefully labeled diagram, where X lies on the x-axis while Y lies on the y-axis. Interpret the consumer's opportunity set. c. Given the following indifference curves, the budget and the prices of goods X and Y, at what point is the optimal choice? Explain your answer. d. Suppose that the budget doubles or increases to PHP 1,000, and all other factors remain constant, what happen to the budget line? How about the new optimal choice? Explain your answer. e. Suppose that the price of good Y decreases from PHP 50 to 25 and all other factors remain constant, what happen to the budget line? How about the new optimal choice? Explain your answer. Good Y 40 35 30. 25 20 15 10 2 4 6 10 12 14 16 18 20 22 24 26 28 30 Good X
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