University:
Elon University
Course:
ECO 1000 | Economics
Academic year:

2024
Views:

332

Pages:

1
Author:

Masadepan C.

Optimal Consumer Equilibrium on Complementary Goods when Prices Change: Indifference Curve Changes in the price of X and or Y in the case of the relationship between X and Y there is a substitution of substitute goods Px 10 10 M/Px = 8 Py 8 5 M 80 80 x 3,6 3,5 y 5,5 9 MUx 18,5 29 MUy 14,8 14,5 Umax 108,6 157,5 M/Py = 10 M/P'y = 16 y 16 10 x 3,5 3, 68 Explanation: In the graph above, it can be seen that, when Py decreases, then good X will also decrease. This shows that the relationship between goods X and Y is substitution. As in the graph above, when Py decreased from 8 to 5, then good X decreased from 3.6 to 3.5. Substitute goods are substitute goods, when the price of good Y rises, buyers tend to choose good X because the price is cheaper, and when the price of good Y falls, buyers tend to choose good Y and good X decreases.