Answer to Question #260866 in Microeconomics for Abbey

Question

you have $500 to spend. Choose any TWO products you would purchase with that $500 (ensure that the price per unit of the items you decide to purchase be divisible by factors of $500).

a) Draw and label the budget line illustrating the two products/services and the budget line/budget constraint.

b) Create your own scenario and show what would happen to the budget line for those same items if the price of any one of the products/services would change (the price could either increase or decrease). Show the diagram and under, explain the scenario in your own words. 

c) Create another scenario and show what would happen to the budget line if the price of the other product/service would change (the price could either increase or decrease). Show the diagram explain the scenario in your own words. 

d) Draw a diagram to illustrate what would happen if your income would increase to $1000.

e) Draw a diagram to illustrate what would happen if the income would decrease to $250.

Answer 1

The answer to your question is provided in the image: