Answer to Question #270005 in Microeconomics for Ranjev

Question

Suppose you are given RM500 each month to spend on meals and sports. Each meal will cost you RM5 and each sport will cost you RM2 per time you spend. Explain with a diagram to show that you have achieve an optimum consumption. Carefully derive the bundle of meals and sports at the optimum consumption point and the intercept points in your diagram. Could you able to obtain a higher optimum consumption point if your budget remains at RM500? Explain

Answer 1

Let meal be represented by $m$ and sports as $s$

The consumption bundle will be written as;

$5m+2s=500$

We use the consumption bundle to draw the graph;

A higher optimum point could be obtained with the same budget if the price of items was reduced