Question

Hello I have these questions. I need good answers in order to undertand not so long nor so short please

1. What is a person’s budget constraint?
2. What does a budget line illustrate?
3. What is the optimal consumption bundle?
4. What is the marginal utility per dollar? (or “bang for your buck

Answer 1

What is a person’s budget constraint?

Answer- A budget constraint represents all the combinations of goods a person can consumers given the prices of those goods and his income.Let us say we have two goods to consume pizza and movie. Price of the pizza is $4 and the price of a movie ticket is $4. And our income is $16. We can write its budget constraint as

4*pizza + 4*movie = 16

What does a budget line illustrate?

Answer: Budget line is the graphcal representation of our budget constraint. It represents all the feasiable combinations of both the goods given our income.

In our example taken above, we can buy either only 4 pizza or only 4 movie tickets. We can also buy 2 pizzas and 2 movie tickets. Our budget constraint shows all such combinations.

What is the optimal consumption bundle?

Answer: The optimal consumption bundle is the consumption bundle that maximizer a consumer's total utility given his or her budget constraint. Our budget constraint shows different combinations of goods, but there is only one optimal consumption bundle that maximizes our total utility.

What is the marginal utility per dollar?

Answer: Marginal utility per dollar means the amount of additional utility consumers get given the price of the product.

We can determine "bang for buck" a buyer gets using the marginal utility per dollar spent, or MU /$. We divide the the marginal utility a cinsumer gets by consuming a good by the price of that good.