Suppose the price of A is $20 per unit, the price of B is $10 per unit, and theconsumer’s income is $1000 per month. Which of the following baskets is not on theconsumer’s budget line?
a) A = 40, B = 20
b) A = 5, B = 90
c) A = 2.5, B = 95
d) A = 20, B = 40
Utility:
The utility is the power or ability of the goods and services that satisfy the consumers want. Alternatively, the satisfying power of commodity is called utility.
The option d (A = 20, B = 40) is not on the consumer’s budget line. While option a, b and c is on the budget line.
To find the correct basket we need to put all the given baskets simultaneously in the budget line (I = PaA + PbB) and verify the condition. Since all the basket satisfies the budget line except option d.
Solution for option d,
Pr...
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