Answer to Question #241317 in Microeconomics for Jeulia

Question

Given two goods named Omega & Alpha, with Omega along the vertical axis, and Alpha on the

horizontal. Assume that the budget is constant at 100 pesos, the price of good Omega is fixed at 5

pesos. The Price of Alpha changes from 1 peso to 2 pesos. What is the MRS after the price

increase in Alpha?

Answer 1

P(x) = 2 pesos

P(y) = 5 pesos

At optimum

$MRS = \frac{P(x)}{P(y)} \\ MRS = \frac{2}{5} = 0.4$

MRS after price increase in Alpha = 0.4