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2012-11-27
A consumer has an income of $104. The price of Y is Py = $8.

(i)        The individual is observed to buy 4 units of Y and 6 of X. What is the price of X? (2 marks)

(ii)        Draw the budget constraint with intercepts calculated and illustrate the equilibrium by including the relevant indifference curve. (3 marks)

(iii)        Now suppose the price of X falls to $6. What is the numerical value of the marginal rate of substitution at the new equilibrium? (Hint: it will be the same as the slope of the budget constraint). (3 marks)

(iv)        If he purchases the same amount of Y as before the price change, how many units of X will he purchase after the price change? Illustrate the equilibrium graphically. (3 marks)

(v)        Suppose he is prevented from buying more than 8 units of X. Illustrate the equilibrium (after the price decline) by drawing the appropriate indifference curve and budget constraint. (2 marks)


第二个问题怎么做呢??
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2012-11-27 07:35:36
Once you determined Px from (i), you can draw the budget line as a straight line with slope - Px/Py.

Then with the original equilibrium point (6, 4), simply draw an indifferent curve with regular shape tangent to the point (6, 4).

Hope this helps.
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2012-11-29 02:47:29
The answer of Question 2:

You can  firstly  derive the price of X by using: 4*$8 + 6* Px = 104. Then you have Px=$12, from which you can derive the function of the budget line :  12X+8Y=104.

Next, you need to find out a point on the X axis and a point on Y axis, then connect them. The connected line is the budget constraint line of that consumer.

To derive a point on the X axis: let Y=0,  then  X=26/3, which means if the consumer spend all her budget on buying x, then she can get 26/3 units of X, so the point is (26/3, 0)
To derive a point on the Y axis: let X=0, then   Y=13,  which means if the consumer spend all her budget on buying Y, then she can get 13 units of Y, the point is  (0, 13)
Just connect this two points you have derived.

PS: The consumer can choose any bundle on the budget constraint line.
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