Mitchell's money income is $150, the price of X is $2, and the price of Y is $2. Given these prices and income, Mitchell buys 50 units of X and 25 units of Y. Call this combination of X and Y bundle J. At bundle J, Mitchell's MRS is 2. At bundle J, if Mitchell increases consumption of Y by 1 unit, how many units of X must he give up in order to satisfy his budget constraint

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15 September, 03:22

Mitchell's money income is $150, the price of X is $2, and the price of Y is $2. Given these prices and income, Mitchell buys 50 units of X and 25 units of Y. Call this combination of X and Y bundle J. At bundle J, Mitchell's MRS is 2. At bundle J, if Mitchell increases consumption of Y by 1 unit, how many units of X must he give up in order to satisfy his budget constraint

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Nina Suarez · Answer 1

1 unit of X must be sacrifised to gain a unit of Y, with satisfying Budget Constraint.

Explanation:

Budget Line shows the product combinations that a consumer can buy with given prices & money income (spending all). Equation : P1X1 + P2X2 = M

Price ratio slope of the budget line i. e = P1/P2 : shows the amount of a good needed to be sacrifised to gain a unit of the other good, given prices & income.

So, Price Ratio : PX / PY = 2 / 2 = 1 in this case; implies 1 unit of Good X is needed to be sacrifised to gain a unit of good Y with given prices & income.