Question #47813

Suppose a consumer has $120/week to spend on two consumer goods, good x and good y.
(a) Illustrate the weekly budget lines (with x on the horizontal and y on the vertical axis) under two price scenarios. In scenario 1 the price of x is $1 and the price of y is $2. In scenario 2 the price of x is $2 and the price of y is $1. Under each scenario, what is the relative price of a unit of x?
(b) Suppose under scenario 1 the consumer would choose 80 units of x, while under scenario 2 the consumer would choose 20 units of x. How much y is consumed in each scenario? Assuming that the consumer is indifferent between the two, illustrate the choices with an indifference curve.

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