Chris has an income of 90 per month at allocate between

Reference no: EM13377459

Chris has an income of $90 per month at allocate between GOODS A and B. Initially the price of A is $3 and the price of B is $4.

a. Draw Chris's budget line, indicating its slope if units of A are measured on the horizontal axis and units B are on the vertical axis.

b. Add an indifference curve to your graph and label the point of consumer equilibrium. Indicate Chris's consumption level of A and B. Explain why this is a consumer equilibrium. What can you say about Chris's total utility at this equilibrium?

c. Now suppose the price of A rises to $4. Draw the new budget line, a new point of equilibrium, and the consumption level of Goods A and B. What is Chris's marginal rate of substitution at the new equilibrium point?

d. Draw the demand curve for Good A, labeling the different price-quantity combinations determined in parts (b) and (c).

Reference no: EM13377459

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