|Apr10-08, 12:25 PM||#1|
1. The problem statement, all variables and given/known data
Since consumers cannot be outside the set of affordable bundles, we get the rate of exchange that consumers face provided the spend all of their budget
dy/dx = -Px/Py (where Px is the price of good x, PY is the price of good y)
by totally differentiating the budget constraint and requiring that dm = 0, where m is total income. Suppose now that the consumer is a price taker in the x market but not a price taker in the y market. What is the rate of exchange that the market offers the consumer?
2. Relevant equations
dy/dx = -Px/Py
m = Px(X) + Py(Y), where X and Y represent total number of goods X and Y, respectively.
3. The attempt at a solution
I know I have to totally differentiate the budget constraint. In other words, I take the derivative of the equation m = Px(X) + Py(Y). Then I have to figure out how altering the quantity of Y with affect Py, the price of Y.
By rearranging the equation m = Px(X) + Py(Y), I get Y = (-Px/Py)(X) + m/Py, and since dm= 0, we arrive at the equation dy = (-Px/Py)dx.
I don't know what to do from here. Can someone please help?
|Apr10-08, 01:02 PM||#2|
nevermind. i got it.
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