(II) The consumer has the income m = 50 and prices of the two goods are p 1 = 5 and p2 = 2. (a) Find the budget set of this consumer. What is the opportunity cost of good 2 in terms of good 1? (b) Suppose the price of good 2 increases to p 2' = 10. What is now the budget set. (c) Suppose now that also income increases to m = 250 and that the price of good 1 increases to 25. What is now the budget set? Compare with the budget set you found in (a) and comment!
(II) The consumer has the income m = 50 and prices of the two goods are p 1 = 5 and p2 = 2. (a) Find the budget set of this consumer. What is the opportunity cost of good 2 in terms of good 1? (b) Suppose the price of good 2 increases to p 2' = 10. What is now the budget set. (c) Suppose now that also income increases to m = 250 and that the price of good 1 increases to 25. What is now the budget set? Compare with the budget set you found in (a) and comment!
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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