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Question
A consumer wants to consume two goods. The prices of the two goods are Rs 4 and Rs 5 respectively. The consumer’s income is Rs 20.
How much of good 2 can be consumed if he/she spends his/her entire income on that good?
Solution
If Rs 20 is entirely spent on good 2, then x1 = 0, as the consumer has no income left to spend on good 1.
4(0) + 5(x2) = 20
5(x2) = 20
`x_2 = 20/5`
x2 = 4 units
Amount of good 2 consumed = 4 units
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