Sara's income is $500, the price of X is $6, and the price of Y is $4. Based on these prices and income, Sara buys 120 units of X and 70 units of Y. Call this combination of X and Y "bundle K." At bundle K, Sara's marginal rate of substitution is 2. Given these prices and income, what is Sara's equilibrium consumption of X? Briefly explain your reasoning.
What will be an ideal response?
Ans: (X*,Y*) is the optimal bundle such that X*>120 and Y*<70.
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