Assume good x is Bitcoins (BTC) and good y is Dollars ($). The price of a...

Assume good x is Bitcoins (BTC) and good y is Dollars ($). The price of a Bitcoin is $10,488. Ralph has $25,800 in his bank account, and he also owns 2 Bitcoins. If Bitcoin is the numéraire, what is the equation of Ralph’s budget line?

Expert Solution

Here price of Bitcoin = $10,488 and Ralph have 2 bitcoins so the total value of bitcoins is equal to $20,976. He also has $25,800 in his bank account therefore total money he has is equal to $46,776. If Bitcoin is numeraire then we will fix the price of bitcoin equal to 1 (i.e. P_x=$1) and we calculate the price of good-y in terms of Numeraire good. Therefore the price of good-y (P_y) = $25,800 / $10,488 = 2.459.

Budget line equation is P_x.X + P_y.Y = M. Therefore Ralph's Budget line equation is 1X + 2.459Y = $46,776.

Rahul Sunny answered 2 years ago

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