What is kerry marginal rate of substitution

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Reference no: EM132080662

Kerry has a budget of $M to spend on two goods: X and Y. The price of good X is $6 per unit and that of good Y is $4 per unit. Kerry's budget line is presented below. At the most affordable point, Kerry consumes 6 units of good X and A units of good Y

(a) Find the values of M, A and B.

(b) At the most affordable point, what is Kerry's marginal rate of substitution (MRS) of good X for good Y? Explain briefly how you obtain the result.

(c) Copy the budget line and indifference curve I2 on your answer sheet. Suppose the prices of good X decrease by $2 per unit. Sketch (as accurately as you can) the new budget line in the diagram and indicate the new equilibrium point by drawing an additional indifference curve. (d) In part (c), is it possible that when the price of good X goes down, its consumption also goes down? I Noticed you provided an answer for a similar type of question. I was wondering if you had worked answers, where I am able to understand the correct process and sequencing in achieving those answers?

Reference no: EM132080662

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