A consumer has $300 to spend on goods X and Y. The market prices of these two go

Question

A consumer has $300 to spend on goods X and Y. The market prices of these two goods are P_x = $15 and P_y = $5. a What is the market rate of substitution between goods X and Y? b. In the graph below: 1) Illustrate the consumer's opportunity set. and 2) Illustrate the consumer's opportunity set for the case where income increases by $300. Instruction: Graph both opportunity sets from where X = 0 to where they cross the X-axis (two points for each curve). c. How does the $300 increase in income alter the market rate of substitution between goods X and Y?

Explanation / Answer

market substitution rate to good X to good Y= cost of good of X/ cost of good of Y

15/5

3:1

one good of Y is equals to 3 goods of X

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