Suppose the price ratio of two goods is 3/4 and Shubman, another student in college has a budget of $100. If the price of good X increases from 6 to 12, what is the new price
ratio? Show your work
Solution:
The price ratio = the slope of the budget
The budget constraint: PxX + PyY = I
Price ratio =
Initial price of good X (Px) = 6
Price ratio =
Py = 8
6X + 8Y = 100
The initial price of good Y = 8
Increase in the price of good X to 12:
The new price ratio =
The new price ratio =
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