Intermediate Microeconomics Assn 2 #2
Homework Answers
(1) Y- axis intercept of budget line = (Income / Price of good measured on Y-axis)
Budget line is LZ
Y-axis intercept = (income / price of good measured on Y-axis)
80 = (income / $5)
Income = 80 * ($5)
Income = $400
Consumer income is $400.
(2) X- axis intercept of budget line = (Income / Price of good measured on X-axis)
Budget line is LZ
X-axis intercept = (income / price of good measured on X-axis)
100 = ($400 / price of good measured on X-axis)
Price of good measured on X-axis = ($400 /100)
Price of good measured on X-axis = $4
(3) Equation of budget line LZ.
Price of good X * Quantity of good X + Price of good Y * Quantity of good Y = Income
$4 X + $5 Y = $400.
Where, X is the quantity of good X
Y is the quantity of good Y.
(4) Slope of budget line LZ = -(Price of good X / Price of good Y)
Slope of budget line LZ = -($4 / $5)
Slope of budget line LZ = -0.8
(5) Utility is maximized at the tangent point of indifference curve and budget line.
In the given figure, indifference curve II and budget line LZ is tangent at point A.
Hence, the utility maximizing quantities are 50 units of X and 40 units of Y
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Intermediate Microeconomics Assn 2 #2
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