Answer to Question #117465 in Microeconomics for Ahmad Saeed

Question

Assume a household’s budget is $10, the price of palm oil is $1 and the price of
cheese is $2:

1. Draw the household’s budget line on the diagram below. If they were to buy only one good or the other, how many total liters of oil could they buy? How many units of cheese?
2.Indicate the point where the household will consume. How many liters of palm oil? How much of cheese? Label this Point as E.
3. Assume the government was to tax palm oil consumption by $1, draw the new budget line on the graph.

Answer 1

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