In the below figure, a consumer is initially in equilibrium at point C. The cons

Question

In the below figure, a consumer is initially in equilibrium at point C. The consumer’s income is $600, and the budget line through point C is given by $600 = $100X + $200Y. When the consumer is given a $100 gift certificate that is good only at store X, she moves to a new equilibrium at point D.

a. Determine the prices of goods X and Y.

b. How many units of product Y could be purchased at point A?

c. How many units of product X could be purchased at point E?

d. How many units of product X could be purchased at point B?

e. How many units of product X could be purchased at point F?

Explanation / Answer

Price of Good X = $100

Price of Good Y = $200

Cost of Purchasing one unit each of X & Y = $300

Hence with a budget of $600 2 units each of product X & Y can be purchased at equilibrium point C.

At point A, good X is not at all purchased hence the budget remaining same at $600, 3 units of good Y can be purchased.

At point E, good Y is not at all purchased hence with the budget of $600, 6 units of good X can be purchased.

At point B, same units of good X will be purchased as on point C = 2 units.

At point F, no units of good Y will be purchased and the budget will be $700, hence 7 units of good X can be purchased.

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.