Ann's money income is $250,the price of X is $3,and the price of Y is $2.Given these prices and income,Ann buys 60 units of X and 35 units of Y.Call this combination of X and Y bundle J.At bundle J Ann's MRS is 2.Given these prices and income,what is Ann's equilibrium consumption of X?

Question

Quizplus · Accepted Answer

We know that Ann's MRS at bundle J is 2, which means that at that point, she is willing to give up 2 units of Y for an additional unit of X.

To find Ann's equilibrium consumption of X, we need to find the point where her MRS is equal to the ratio of the prices of X and Y.

The ratio of the prices of X and Y is 3/2=1.5

Therefore, we need to find the point where MRS=1.5.

At bundle J, Ann's MRS is higher (2), which means she is willing to give up more Y for an additional unit of X than the ratio of the prices. To get to the equilibrium consumption of X, Ann needs to give up some X in exchange for more Y until her MRS is equal to the ratio of the prices.

Since Ann's MRS is decreasing as she consumes more X and less Y, her equilibrium consumption of X must be greater than 60. Therefore, the correct choice is C) X > 60.

Ann's Money Income Is $250,the Price of X Is $3,and