Answer to Question #239824 in Microeconomics for Cel

Question

Professor Five likes wine. He is especially fond of Red Wine. His wine budget is $200 per month. He is considering a purchase of three different types of Red Wine. The first, bottled by the UltraBoutique Winery has a price of $50 per bottle. The second, produced by the Good Enough Winery is priced at $20 per bottle. The third, produced by the High Volume winery, carries a price of $5 per bottle. While Prof. Five believes the UltraBoutique wine is noticeably better than either of the other two, he is unsure whether UltraBoutique is ($50/$20)=2.5 times as good as Enough. Similarly, he is unsure whether Good Enough is worth ($20/$5)=4.0 times as much as High Volume.

Question: Discuss Prof. Five’s budget constraint for these three wines.

Answer 1

First, considering the three different types of Red wine, $50+5+ 20= 75$$Which$ is less than the budget 200 may be expressed as $P_U + P_G+P_H>I$

The budget constraint tends to higher than what the purchases may take. The quality can never be determined in terms of price, however the budget its possible that Ultrabotique winery is better compared to Enough winery.