Answer to Question #141604 in Finance for ANKIT

Question

Consider a world in which there are only two goods. An individual has an income of $9,000, the price of deodorant is $3 per bottle, and the price of mouthwash is $2 per bottle.



i) Expressing deodorant as the dependent variable, where the equation for the budget constraint.

ii) What is the slope of the budget constraint?

iii) If the price of mouthwash increases to $4, write the new equation for the budget constraint.

Answer 1

i )the equation for the budget constraint is:

$I=Px\times X+Py\times Y$

I=900

Px=3, Py=2

$9000=3x+2y$

ii) negative slope of the budget constraint

iii)$9000=3x+4y$