Question

3.1 Suppose a person has $10.00 to spend only on apples and bananas. Apples cost $.50 each,
and bananas cost $.20 each.
(a) If this person buys only apples, how many can be bought?
(b) If this person buys only bananas, how many can be bought?
(c) If the person were to buy 20 bananas, how many apples could be bought with the funds
left over?
(d) Write down the algebraic equation for this person’s budget constraint, and graph it
showing the points mentioned in parts a through c. (Please be sure to put apples on the
vertical axis and bananas on the horizontal axis

Answer 1

(a) If this person buys only apples, 20 apples can be bought .

Explanation:

Given income = $10.00

Cost of per apple = $0.50

If this person buys only apples, then the number of apples can be bought ;

= 10 / 0.50 = 20 apples

b) Ans: If this person buys only bananas, 50 bananas can be bought.

Explanation:

Given income = $10.00

Cost of per apple = $0.20

If this person buys only bananas, then the number of bananas can be bought;

= 10 /0.20 = 50 bananas

c) Ans: If the person were to buy 20 bananas, 12 apples could be bought with the funds
left over.

Explanation:

The cost of 20 bananas = $0.20 * 20 = $4.00

The funds left over = $10.00 - $4.00 = $6.00

The number of apples could be bought with the funds left over;

= 6/ 0.50 = 12 apples

d) Ans:

Budget line APPLES 20 Joy BANANAS

The algebraic equation for this person’s budget constraint ;

Y = PA * QA + PB * QB

Where ,

Y = total given income which is to be spent on both the goods

PA = Price of apple

PB = Price of banana

QA = Quantity of apples

QB = Quantity of bananas