Answer to Question #196736 in Microeconomics for haider

Question

Inayah is a rational consumer who consumes milk and cookies only from her monthly income of Rs. 1,500. If the price of milk is Rs. 500 per liter and the price of one pack of cookie is Rs. 300, answer the following questions:  

a. Given the information above write the equation of the budget line and illustrate the same through the two-dimensional labeled diagram.                                           (1 Mark)

b. If Inayah spends all of her income on consuming one good, find:                      (1 Mark)

i.  how much cookies she could afford?

 ii. how much milk she could consume?

Answer 1

let liters of milk consumed be x

let packs of cookies consumed be y

(a)

Equation of the budget line

$500x+300y=1500$

(b)

(i)

$Milk=\frac{1500}{500}=3$

Therefore if Inayah spends all her income on milk she can afford 3 liters of milk

(ii)

$cookies =\frac{1500}{300}=5$

Therefore if Inayah uses all her income on cookies she can afford 5 packs of cookies