Suppose two different bundles of goods cost the same amount of income M. How does this...

Suppose two different bundles of goods cost the same amount of income M. How does this relate to a budget line? Furthermore, suppose there are only two goods, x and y and that the price of x is $4 and the price of y is $2. If the income of the consumer is $20, find two bundles that are affordable and have the same total expenditure. Illustrate this in a graph.
Suppose a consumer has income $25 and can spend it in two goods x and y. The price of y is $2 and the price of x is dependent on how many units of x purchased. More specifically, suppose the price of x is px=2x. For example, if the consumer buys one unit of x then the price per unite is px=2 • 1 = 2 and if the consumer buys two units of x then the price per unit is px = 2•2 = 4 per unit. Determine the equation for the budget constraint. Illustrate this on a graph
Suppose there are two goods the consumer can buy with income M and facing prices px and py. If Income and both prices double, what happens to the budge line? Why? Show this mathematically.

Consider a consumer with utility function u(x,y) = xy. Is the bundle (1,1) better than the bundle (0.5,2)? Suppose a consumer now wants to maintain a utility level of 4. What are the bundles of (x,y) that will achieve this objective?

Consider a relation R= “ is at least as old as.” Does this relation satisfy the three axioms if consumer theory

Expert Solution

1) Budget line is the locus of all bundles of good X and Good Y which can be purchased with given income M and prices Px and Py, such that the expenditure of each of the possible combinations is equal to the total money income of the consumer. . If the price of good X is Px and price of good Y is Py, then equation of the budget line is given by :

Px*x+ Py*y = M where, Px: Price of good X, Py: Price of Good Y, x: Units of good X consumed, y: Units of good Y consumed, M: Income of the consumer

Given: Px = $4 and Py= $2, M = $20

Budget Equation: 4x +2y = 20

two bundles that are affordable and have the same total expenditure:

If x= 2, => 4*2 + 2y = 20 => 8 +2y = 20

2y = 20-8 = 12 => y=12/2 = 6

First bundle: (x,y) = (2,6)

If x= 4, => 4*4 + 2y = 20 => 16 +2y = 20

2y = 20-16 = 4 => y=4/2 = 2

Second bundle: (x,y) = (4,2)

Rahul Sunny answered 1 year ago

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