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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Diagram the following budget constraints:

  1. a. Income = $4,000; PX = $50; PY = $100
  2. b. Income = $3,000; PX = $25; PY = $200
  3. c. Income = $2,000; PX = $40; PY = $150

(a)

To determine

Draw the budget constraint when income = $4,000; PX = $50; PY = $100.

Explanation

Since the income is $4,000 and price of good X is $50, the quantity of good X can be calculated as follows:

Quantity of good X=IncomePrice of good X=$4,000$50=80

Thus, the consumer will consume 80X.

Since the income is $4,000 and price of good Y is $100, the quantity of good Y can be calculated as follows:

Quantity of good Y=IncomePrice of good Y=$4,000$100=40

Thus, the consumer will consume 40Y.

Now, the budget constraint can be represented as follows:

images

In Figure 1, the vertical axis measures the quantity of good Y and the horizontal axis measures the quantity of good X.

(b)

To determine

Draw the budget constraint when income = $3,000; PX = $25; PY = $200.

Explanation

Since the income is $3,000 and price of good X is $25, the quantity of good X can be calculated as follows:

Quantity of good X=IncomePrice of good X=$3,000$25=120

Thus, the consumer will consume 120X.

Since the income is $3,000 and price of good Y is $200, the quantity of good Y can be calculated as follows:

Quantity of good Y=IncomePrice of good Y=$3,000$200=15

Thus, the consumer will consume 15Y.

Now, the budget constraint can be represented as follows:

images

In Figure 2, the vertical axis measures the quantity of good Y and the horizontal axis measures the quantity of good X. 

(c)

To determine

Draw the budget constraint when income = $2,000; PX = $40; PY = $150.

Explanation

Since the income is $2,000 and price of good X is $40, the quantity of good X can be calculated as follows:

Quantity of good X=IncomePrice of good X=$2,000$40=50

Thus, the consumer will consume 50X.

Since the income is $2,000 and price of good Y is $150, the quantity of good Y can be calculated as follows:

Quantity of good Y=IncomePrice of good Y=$2,000$150=13.33

Thus, the consumer will consume 13.33Y.

Now, the budget constraint can be represented as follows:

images

In Figure 3, the vertical axis measures the quantity of good Y and the horizontal axis measures the quantity of good X. 

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