A person has $250 to spend on two goods (x and y) whose respective prices are...

A person has $250 to spend on two goods (x and y) whose respective prices are $2 per unit and $5 per unit.

(a) Draw the budget line showing all the different combinations of the two goods that can be bought with the given budget.
(b) What happens to the budget line if the budget (money available to spend) increases by 100%.
(c) What happens to the budget line if the price of good x decreases by 50%?
(d) What happens to the budget line if the price of good y increases to $10 per unit?

Solutions

Expert Solution

Income(M) = $250

Price of Good X = $2

Price of Good Y = $5

Units of X that can be purchased = 250/2 = 125

Units of Y that can be purchased = 250/5 = 50

Formula: Income(M) = (Px)(Qx) + (Py)(Qy)

Rahul Sunny answered 1 year ago

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