Q1 Indifference curve and budget lineKerry has a budget of $M to spend on two goods: X and Y. The price of good X is $6 per unit and that ofgood Y is $4 per unit. Kerry’s budget line is presented below. At the most affordable point, Kerryconsumes 6 units of good X and A units of good Y.(a) Find the values of M, A and B.(b) At the most affordable point, what is Kerry’s marginal rate of substitution (MRS) of good X forgood Y? Explain briefly how you obtain the result.(c) Copy the budget line and indifference curve I2 on your answer sheet. Suppose the prices ofgood X decrease by $2 per unit. Sketch (as accurately as you can) the new budget line in thediagram and indicate the new equilibrium point by drawing an additional indifference curve.(d) In part (c), is it possible that when the price of good X goes down, its consumption also goesdown? `
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