Suppose that Tara’s endowment is (100,25), good x is the numéraire, and py=13. What is the...

Suppose that Tara’s endowment is (100,25), good x is the numéraire, and py=13. What is the y-intercept of Stefani’s budget line?

Expert Solution

The budget line is given as follows:

X*Px + Y*Py = 100*Px + 25*Py

=> X*1 + Y*13 = 100*1 + 25*13 (since X is the numeraire good => Px = 1)

=> X + 13Y = 425

Inn order to find the Y intercept, we put X = 0

=> 13Y = 425

=> Y = 425/13 = 32.69

Rahul Sunny answered 2 years ago

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