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Title: George has a fixed income and can afford at most 7 units of X if he spends his entire income on X. ... Post by: corie on Oct 24, 2017 George has a fixed income and can afford at most 7 units of X if he spends his entire income on X. Alternatively, if he spends all his income on Y, he can afford at most 6 units of Y. Draw George's budget line and an indifference curve such that George chooses to buy 4 pieces of X. Martha has the same income and faces the same prices, yet she chooses to buy 2 pieces of X. In equilibrium, what is George's subjective value of X in terms of Y? What is Martha's?
Title: Re: George has a fixed income and can afford at most 7 units of X if he spends his entire income on ... Post by: LBCea on Oct 24, 2017 In equilibrium, one unit of X will be worth 6/7 units of Y for both George and Martha. The reason is that each consumer choices a consumption bundle so that MRS is equal to the price ratio.
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