Question

A consumer consumes only two goods X and Y. His money income is Rs 200 and the prices of Goods X and Y are Rs 40 and Rs 20 respectively.
(i) Write two such combinations of X and Y which lie on the budget line.
(ii) Write two such combinations of X and Y which are a part of his budget set but do not lie on his budget line.
(iii) What is the equation of budget line and its slope?
(iv) Can the consumer afford a bundle 4X and 5Y? Explain.
(v) What will be the MRS when the consumer is in equilibrium? Explain.

Answer 1

Explanation:

A consumer consumes only two goods X and Y. His money income is Rs 200 and the prices of Goods X and Y are Rs 40 and Rs 20 respectively.

(i) Write two such combinations of X and Y which lie on the budget line.

(ii) Write two such combinations of X and Y which are a part of his budget set but do not lie on his budget line.

(iii) What is the equation of budget line and its slope?

(iv) Can the consumer afford a bundle 4X and 5Y? Explain.

(v) What will be the MRS when the consumer is in equilibrium? Explain.