Determine the market rate of substitution

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Reference no: EM13817925

Over the past decade, medical costs have increased more rapidly than other prices. In order to illustrate how rising medical costs have affected consumer alternatives, let X represent the quantity of medical services, and let Y represent the quantity of other goods. Furthermore, let income (M) be measured in hundreds of dollars, the price of medical services and other goods in terms of dollars per minute, with M = 100, Px = 4, and Py = 5.

a) Graph the budget line, and determine the market rate of substitution.

b) Illustrate the budget set.

c) Show in your graph what happens to the budget constraint if Px increases to $10.

d) What is the meaning of the slope of the two budget constraints?

Reference no: EM13817925

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