Question: Suppose a consumer has the indifference map shown below. The relevant budget line is LZ. The price of good Y is $10.a. What is the

Suppose a consumer has the indifference map shown below. The relevant budget line is LZ. The price of good Y is $10.a. What is the consumer?s income?b. What is the price of X?c. Write the equation for the budget line LZ.d. What combination of X and Y will the consumer choose? Why?e. What is the marginal rate of substitution at this combination?f. Explain in terms of the MRS why the consumer would not choose combinations designated by A or B.

g. Suppose the budget line pivots to LM, income remaining constant. What is the new price of X? What combination of X and Y is now chosen?h. What is the new MRS?

60 50 40 - B 30 III 20 II 10 A 10

60 50 40 - B 30 III 20 II 10 A 10 30 40 50 60 70 80 Quantity of X Quantity of Y 20

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