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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. Illustrate the consumer’s opportunity set in a carefully labeled diagram.
c. 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?
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