Question

In: Economics

A consumer has an income of $1,000 to spend on food and medicine. The price of...

A consumer has an income of $1,000 to spend on food and medicine. The price of one unit of food is $$5 and the price of one unit of medicine is $10. For each question, write down the mathematical expression of the budget constraint and draw it carefully. Put food on the x-axis and medicine on the y-axis. Label the intercepts, slopes, and kinks.

Suppose the consumer receives coupons for 50 units of food and those can only be used to buy food.
Suppose the consumer receives coupons for 50 units of food and can sell the coupons at half of the market price of the food.
Instead of the coupon, the consumer receives a 10% discount for additional units of food that exceed 100 units. That is, the consumer pays $5 for each of the first 100 units and $4.5 for each additional unit.

Expert Solution

A budget constraint shows the various combinations of two goods ,a consumer can afford to buy.

Let X be the units of food , Y be the units of medicine and M be the budget or income of the consumer.

Budget constraint ( mathematical expression)----------

M= 5X+10Y

X. Y

200. 0

0. 100

Diagramatic expression of budget line-----

Intercept of budget line-----

Horizontal intercept( X) is the point----- 200,0

Vertical intercept (Y) is the point --------0,100

Slope of budget line-------

slope of budget line is the rate of change.It is the price of X in terms of Y

Px/ Py= Qy/Qx

5/10 or 100/200

= 1/2

#When consumer received 50 units of food coupons------

Horizontal intercept(X)----250,0

Vertical intercept(Y)-------0,100

Slope of budget line in terms of quantity--

Qy/ Qx

100/250

2/5

Kink of budget line is the movement from B to B'

when 50 units food coupons are sold half the market price of coupons----

Intercept ( horizontal) X-----225 , 0

Intercept ( vertical)Y---------0 ,112•5

As his real income to spend has increased from $1000 to $1125

Slope of budget line --- Qy/Qx

1125/225

45/9

If he pays $5 for first 100 units &$4•5 for additional units of food-------

food ( X) intercept = 211,0

Medicine Y intercept =0,100

Slope of budget line -----

Qy/Qx-----100/211

Rahul Sunny answered 4 hours ago

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