Question

If the price of good X is $10 and the price of good Y is $5, how much of good X can the consumer purchase if her income is $15 and she spends it entirely on purchasing good X?

a. 1.5

b. 0

c. 3

d. 2

Answer 1

Solution:

The correct answer is a. 1.5.

 

Budget constraint: I = PxX + PyY

I = 15

Px = 10

Py = 5

15 = 10X + 5Y

Good X = $\frac{15}{10}$ = 1.5

The consumer can purchase an amount of Good X = 1.5