Answer to Question #102728 in Macroeconomics for sarai

Question

there are two goods, X and Y. the absolute price of X rises and the absolute price of Y does not change. Prove that the relative price of X rises in terms of y

Answer 1

The graph shows an initial budget constraint BC1 with resulting choice at tangency point A, and a new budget constraint after a decrease in the absolute price of Y (the good whose quantity is shown horizontally), with resulting choice at tangency point C. In each case the absolute value of the slope of the budget constraint is the ratio of the price of good Y to the price of good X – that is, the relative price of good Y in terms of X.