Answer to Question #273807 in Microeconomics for Ashes

Question

Kali lives on mangoes and avocados, Pm = $5, Pa = $10, and her income is $200.

A. Identify her budget constraint equation and illustrate Kali’s budget line on a graph

with eggplants on the horizontal axis and soursop on the vertical axis.

B. Identify and illustrate on a new graph Kali’s new budget constraint if her income

doubled, the price of eggplants doubled, and the price of soursop remained constant.

C. Explain the impact on her real income when the price changed in the scenario in B

assuming income had remained constant.

D. Complete the following table and graph the utility curves for Kali and describe the

slope of her utility curves in the context of her consumption for mangoes.

Answer 1

a.

Equation of Budget constraint is:

$P_mm+P_aa=M$

where Pm is the price of mangoes

Pa is the price of avocados 

m is the number of mangoes

a is the number of avocados

M is the income level.

Budget constraint equation:

$5m+10a = 200$

b.

Budget constraint equation:

$10m+10a = 400$

c.

it will lead to change the quantity that consumers will demand for the good and related goods. quantity demanded for mangoes will reduce .

d.

The slope represent MRS which is the rate at which the consumer is willing to give up one good for another