Louis has stable preferences and consumes two goods, wine and cheese. In 1994, the price of wine was $4/glass and the price of cheese was $2/ounce. Louis's income was $60 and he bought 12 glasses of wine and 6 ounces of cheese. In 1995, wine costs $2/glass and cheese costs $4/ounce. Louis's income is still $60.   a.     Draw both years' budget lines. Where do they cross? b.     What is Louis's marginal rate of substitution of wine for cheese in 1994? [hint: you can't use calculus]

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Equilibrium Price and Quantity

Equilibrium refers to a state of balance that comes about because there is equality in all forces.