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    Indifference Curves

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    Need help with the attached problem:
    A consumer is in equilibrium at point A in the accompanying figure. The Price of good X is $5.
    a.What is the price of good Y?
    b.What is the consumer's income?
    c.At point A, how many units of good X does the consumer purchase?
    d.Suppose the budget line changes so that the consumer achieves a new equilibrium at point B. What change in the economic environment led to this new equilibrium? Is the consumer better off or worse off as a result of the price change?

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    Solution Preview

    The most important information given here is the price of good X is $5, and the budget line ends at quantity 20 on the X axis. This means if the consumer spends all the income on good X he get 20 units. At $5 a piece that translates to $100. Hence the income of the person is $100.

    a. Once we have the income it is easy to find ...

    Solution Summary

    Indifference Curves are exemplified.