Indifference Curves
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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 Summary
Indifference Curves are exemplified.
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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 ...
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