Answer to Question #289904 in Macroeconomics for Shinu maxx

Question

A consumer spend income 5000 on food and cloth draw the budget line and identify intercept food price is100 and cloth price is 250

Answer 1

Question #289904

Given:

$$P_x = 100$$

$$P_y = 250$$

$$Budget=5,000$$

Solution:

Let $x$ be the quantity of food consumed by the customer, $y$ be the quantity of cloth consumed by the customer. In this case, the budget line has the equation:

$$5,000 = P_x \cdot x + P_y\cdot y \Rightarrow$$

$$\Rightarrow 5,000=100\cdot x+250\cdot y$$

The intercepts are:

• For the x-intercept, we have:

$$y=0 \Rightarrow5,000=100\cdot x+250\cdot0 \Rightarrow$$

$$\Rightarrow 5,000=100\cdot x\Rightarrow x=5,000\div 100=50$$

Thus, x-intercept is (50, 0).

• For the y-intercept, we have:

$$x=0\Rightarrow 5,000=100\cdot 0+250 \cdot y\Rightarrow$$

$$\Rightarrow 5,000 = 250\cdot y\Rightarrow y=5,000\div 250=20$$

Thus, the y-intercept is (0,20).

Based on the equation of the budget line, the graph is:

Answer: the equation of the budget line is $5,000=100\cdot x+250\cdot y$ . The intercepts are: (0, 20) and (50,0).