Jane is your typical economics student who consumes two goods: economics textbook and coffee. Jane’s income is $40. She can spend it all on books and get 5 or she can spend it all on coffee and get 20 cups.Given this information, construct the equation for Jane’s budget line and plot it (put books on the x–axis and coffee on the y–axis)

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Chapter6: Consumer Choice And Demand
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Jane is your typical economics student who consumes two goods: economics textbook and coffee. Jane’s income is $40. She can spend it all on books and get 5 or she can spend it all on coffee and get 20 cups.
Given this information, construct the equation for Jane’s budget line and plot it (put books on the x–axis and coffee on the y–axis)

Expert Solution
Step 1

Jane's income,M = $40

Number of books, Px = 5

Price of books = 405=$8

Number of coffee cups, Py = 20

Price of cups (coffee)=4020=$2

Step 2

The budget equation:Price of books×Quantity of books+Price of coffee×Quantity of coffee=Total income                                                                                                  8×Px+2×Py=M                                                                                                   or, 8Px+2Py=$40

 

Economics homework question answer, step 2, image 1

 

Here, the graph shows the number of books on X-axis and the number of coffee cups on Y-axis. The number of books purchased ar the rate $8 is 5 and the number of coffee cups at the rate of $2 is 20 units.

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