Question

In: Economics

A consumer’s budget set for two goods (X and Y) is 600 ≥ 3X + 6Y....

A consumer’s budget set for two goods (X and Y) is 600 ≥ 3X + 6Y.

a. Illustrate the budget set in a diagram.

b. Does the budget set change if the prices of both goods double and the consumer’s income also doubles? Explain.

c. Given the equation for the budget set, can you determine the prices of the two goods? The consumer’s income? Explain.

Expert Solution

600 ≥ 3X + 6Y.

a.

3X + 6Y = 600

6Y = 600 - 3X

Y = 100 - 0.5X

Slope of the budget line = -0.5

b.

Let prices double to 6 and 12 and income double 1200

New budget Set: 6X + 12Y >= 1200

Dividing this by 2 gives,

3X + 6Y >= 600 (original budget set)

So, it does not changes the budget Set

c.

Given budget set: 3X + 6Y >= 600

General equation of budget constraint: XPx + YPy = M

So, price of Good 1: Px = 3

Price of Good 2: Py = 6

Income, M = 600

Rahul Sunny answered 2 years ago

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