Question

1. Assume that price of good X (Px2) will become P5.00 per unit while B1 and Py1 remain the same. What is the new combination of goods X and Y the consumer should purchase in order to be at equilibrium?

Answer 1

Budget constraint:$B_{1} = P_{x2}X +5+ P_{y1}Y$

At equilibrium;$P_{x}X=P_{y}Y$

Let $P_{x2}X$ be X;

At equilibrium 2X=$B_{1}+5$

$X=\frac{B_{1}+5}{2}$

Quantity of good X:

$B_{1}+5=P_{x2}X$

$X=\frac{B1+5}{P_{x2}}$

Quantity of good Y;

$B_{1}=P_{y1}Y$

$Y=\frac{B_{1}}{P_{y1}}$

The new combination will be;

($\frac{B1+5}{P_{x2}},$ $\frac{B_{1}}{P_{y1}}$ )