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1. A consumer has $300 to spend on goods X and Y. The market prices of these two goods are Px $15 and Py $5.
a. What is the market rate of substitution between goods X and Y?
b. Show how the consumer's opportunity set changes if income increases by $300. How does the $300 increase in income alter the market rate of substitution between goods X and Y?
2. A consumer must divide $ 600 between the consumption of product X and product Y. The relevant market prices are Px = $10 and Py = $40.
a. Write the equation for the consumer's budget line.
b. Show how the consumer's opportunity set changes when the price of good X increases to $ 20. How does this change alter the market rate of substitution between goods X and Y?
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