Question

a person has $200 to spend on two goods X and Y whose respective prices are $7 and $9 draw the budget line? what happens to the original budget line if the budget falls by %50 ?what happen to the originale budget line if the price of X doubles? what happen to the originale budget line to be spent if the price of Y falls to $8?

Answer 1

(a)

$P_x=7, G_x=\frac{200}{7}=28.57$

$P_y=9,G_y=\frac{200}{9}=22.22$

(b)

$200-(0.50\times 200)=100$

$P_x=7,G_x=\frac{100}{7}=14.29$

$P_y=9,G_y=\frac{100}{9}=11.11$

(c)

$P_x=14, G_x=\frac{200}{14}=14.29$

(d)

$P_y=8, G_y=\frac{200}{8}=25.$