Answer to Question #136247 in Macroeconomics for Daniel Mwaba

Question

Nthanda’s budget line relating to good X and good Y has intercepts of 50 units of good X and 20 units of good Y. Suppose the price of good X is K12
a) What is Nthanda’s income (1.5 Marks)
b) What is the price of good Y? (1.5 Marks)
c) Suppose the price of good X was to fall to K10, what effect would this have on the budget line?

Answer 1

Nthandas income

=$P_x\times Q_x+ P_y\times Q_y$

When $Y=0,X =50 units$

=$K12\times50+P_y\times0$

$K600$ is total income

$B$ price of good Y?

$=\frac{total income}{maximum quantity of Y that can be purchased}=\frac{K600}{20}$ =$K600$

$C.$ Effect of the budget line

Decrease in price of good X will have anticlockwise movement of budget line .After decrease in price of X to K10, K600/K10= 60 units of X can be purchased