While abroad for a convention, Kevin spent all of the local currency he had in order...

While abroad for a convention, Kevin spent all of the local currency he had in order to buy 1 pair of pants and 9 bananas. Pants cost 9 units of the local currency per pair and he had 18 units of currency. Let p denote the number of pants and b denote the number of bananas. Write down an equation describing the set of all bundles of these two commodities that he could have just afforded with the local currency he had (i.e., completely using up all the local currency). Please show all work!

Expert Solution

Assume that Kevin has a total of M units of local currency. With this money he purchase is one pair of pants and 9 Bananas. We are given that the cost of a pair of pants is 9 units of local currency and he had a total of 18 units of currency. This indicates that with the remaining money of 9 units of local currency he purchases 9 Bananas. This implies that the price of Bananas is one unit of local currency.

Now assume that the number of pants purchased by him is denoted with p and the number of Bananas purchased by him is denoted with b. With an income of M units of local currency, the budget equation is given by

Income = price of a pair of pant x the number of pair of pants + price of 1 unit of banana x quantity of Bananas

M = 9 x p + 1 x b

18 = 9p + b

The last equation describes the set of all the bundles of these two commodities that Kevin could have just awarded with the local currency he had. If he purchases one pair of pant and 9 Bananas, all his income is exhausted. He can maximum purchase 18 Bananas or two pair of pants.

Rahul Sunny answered 1 year ago

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