Question

a. You have 2 goods, apples, and bananas, that you are buying. The price of apples is $2.00 each and the price of bananas is $1.00 each. You have $10.00 to spend. Draw a budget line for these two products. Fill the table below to help you make this graph.

b. Can you afford 4 apples and 4 bananas? Show why or why not.

Apples	Bananas	Cost of Apples	Cost of Bananas	Total Cost
0	10	0	10	$          10.00
1				$                    -
2				$                    -
3				$                    -
4				$                    -
5	0	10	0	$          10.00

Answer 1

Ans)-

a) Price of apple = $2

Price of banana = $1

Total income to spend on these goods (M) = $10

Apples	Bananas	Cost of apples (in $)	Cost of Bananas (in $)	Total cost (in $)
0	10	0	10	10
1	8	2	8	10
2	6	4	6	10
3	4	6	4	10
4	2	8	2	10
5	0	10	0	10

Note: How the above table completed-

In the 2^nd row of table, if we are consuming 1 unit of apple, then cost of apple would be $2 (1*price of apple). Since, we have only $10 to spent out of which $2 is the cost of apple so the remaining income of $8 ($10-$2) will be used to consume bananas, so the cost of banana would be $8 and hence for $8 we can buy 8 units of banana because price of banana is $1.

Similarly, we can complete the whole table as I did.

Budget Line:

b) If we are consuming 4 apples and 4 bananas then

Cost of apples = 4*price of apple = 4*2 =$8

Cost of banana = 4*price of banana = 4*1 =$4

So, the total cost = $8 + $4 = $12 would exceed the income we have. So, this combination of goods cannot be consumed. This can also be explained using budget line, we know that the budget line shows all possible combination of goods that a consumer can consume given his income. Any point above the budget line is not feasible or that combination of goods cannot be purchased, higher income would be required to purchase that combination of goods.

And as we can see that the consumption bundle of 4 apples and 4 bananas is above the budget line, so we cannot consume this combination of goods.