Question

A person has $100 to spend on two goods X and Y whose respective prices are $3 and $5.

a) Find the equation of the budget line and sketch its graph

b) What will be the equation of the new budget line if the original budget falls by 25%? 

Sketch its graph

c) What will be the equation of the new budget line if only the price of X doubles? Sketch 

its graph

Answer 1

a) Equation of Budget ine

I= 100

$P_x=3$

$P_y= 5$

Equation= 3X+5Y= 100

It is as below in a diagram;

b) The budget reduces by 25%

New budget=75%$\times100= 75$

New budget line= 3X+5Y= 75

It is as below in a diagram;

c) If price of X doubles

New price=3$\times 2= 6$

New budget line= 6X+5Y= 100

It is as below in a diagram;