14. A consumer has the indifference map shown below. The market prices of X and Y are $24 and $8, respectively. The consumer has $120 to spend on goods X and Y.
15
10
5
0
III II
I
5 10 15 20
Good X
Good Y
Price of X

APPLIED PROBLEMS
a. Construct the consumer’s budget line and find the utility-maximizing consump- tion bundle. Label this bundle “E”. Bundle E is composed of   units of X and   units of Y.
b. For bundle E, the marginal rate of substitution is   (greater than, less than, equal to) the slope of the budget line (in absolute value). The ratio MUyP for good X is (greater than, less than, equal to) the ratio MUyP for good Y.
c. Bundle E (is, is not) a corner solution.
Now suppose the consumer’s income and the price of Y remain the same, but the
price of X decreases to $8.
d. Construct the new budget line and find the new utility-maximizing consump- tion bundle. Label this bundle “N”. Bundle N is composed of   units of X and   units of Y.
e. For bundle N, the marginal rate of substitution is   (greater than, less than, equal to) the slope of the budget line (in absolute value). The ratio MUyP for good X is (greater than, less than, equal to) the

Answer rating: 100% (QA)

The market price of X and Y are 24 and 8 respectively Income line 120 Budget line Income Price x x Q... View the full answer