Question

4. (15%) A consumer has $300 to spend on good X and Y. The market price of these two goods are Px-$50 and Py=$100. a. Mathematically and graphically present the budget line. b. Describe graphically what would happen to the budget line if the consumer is given a $50 gift certificate for good X and Px=$25?

Answer 1

m= $300 Px = 50 $ Py = 100$ (a) equation of Budget dine Cheneral equation ) px -x + by.y = m. for our case we have. 50.X + 100y = 300 at x-axis Y=0 = x= 60 Specific to our case x=0 = Y=3 Slope =-b1 = -50 þz 100 Scope=0 - Z at 4-axis a in s w N - siolee - 2 = -0.5 scope = -0.25 - 4 1 2 3 5 6 7 8 9 10 11 12 (6) For & so gift carrouse of Price pe eaget dine free upto For $ 50 gift certificate makes good ho Trade of b/w X and Y and Budget Line will be Parallel to x-axis upto 2 units,

after 2- Units, it consumer wants to consumc more of x he has to sacrificed y. good quantity at given Prices, & ang slope ayter 2-units of x will become - Bx = -25 = -0.4 -0.25 100 8 . and equation of 1 Budget Line we have new. 3- 25x + 1001 300 o at x-axis y=0 => X = 300 -3. Pro- =) x = 12 at 4-axis x=0 - Y= 3 (as Previous Green Budget dine is for Past (aj and (Red and Black ) Joo Part -B if we want to draw separately we we can do that very easily