(a)
To draw the budget lines of Mr. J in three different scenarios.
Explanation of Solution
A budget line is a graphical representation of all the possible combinations of goods and services which can be purchased with given income and prices. The total money income of the consumer equals the total cost in purchase of goods and services.
Budget Line is denoted by the equation:
Where,
The income of consumer is $100, and the prices of both goods are $2 each. So, the consumer can purchase 50 units of tacos and no hot dogs, 50 units of hot dogs and no tacos or any other feasible combination.
The figure below shows the budget line of this consumer:
(b)
To draw the budget lines of Mr. J in three different scenarios.
Explanation of Solution
The income of consumer changes to $150 with no change in prices. So, the consumer can now purchase 75 units of either good with no unit of the other good or any other feasible combination.
The figure below shows the budget line of this consumer:
(c)
To draw the budget lines of Mr. J in three different scenarios.
Explanation of Solution
The income of the consumer is $100, and price of tacos is $2.50 per unit whereas the price of hot dogs is $2 per unit.
So, the consumer can either purchase 40 units of tacos and no other good, 50 units of hot dogs and no other goods or any other feasible combination of both.
The figure below shows the budget line of this consumer:
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Chapter 5A Solutions
EBK MICROECONOMICS: PRINCIPLES AND POLI
- Anthony’s Budget Line Anthony has already committed most of his income to his monthly living expenses and saving a few dollars each month. Having made these decisions, Anthony has a remaining budget of $15 a week, which he spends on two goods: coffee and magazines. The price of a cup of coffee is $2.50 and the price of a magazine is $5. 1. Construct a table showing the alternative combinations of the two goods that Anthony might purchase in a given week. 2. Use the data in your table to graph Anthony’s budget line. 3. What is the opportunity cost of each cup of coffee? What is the opportunity cost of each magazine? 4. Based on this information, do we know how many cups of coffee or magazines Anthony should buy each week? Why or why not? 5. Anthony decides he wants to upgrades to the $5 cup of coffee- the larger cup with extra flavoring! Using a graph, show how this will change Anthony’s budget line. (Note: This is most easily demonstrated by putting both budget lines on the…arrow_forwardGraph the budget line showing all the different combinations of good ? (drawn on the horizontal axis) and good ? (drawn on the vertical axis) that can be bought given the consumer’s total income. In the graph, indicate the y-intercept and x-intercept of the budget line.arrow_forwardWhat happens to the budget line if the price of good 2 increases, but the price of good 1 and income remain constant?arrow_forward
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