Question

As described in Exercise 8.1, Lucy wants carpets and paintings for her office. Her company has given her a budget of $7,200 for this purpose. Persian carpets of the size that she wants can be purchased for $900 each and paintings from a local Native American artist cost $400 each.

a. Using Excel’s charting tool, draw Lucy’s budget constraint if her budget is $5,000. Use 0, 1, 2, 3, 4, and 5 carpets as possible quantities. Put carpets on the horizontal axis and paintings on the vertical axis.

Answer 1

Solution:

Budget constraint describes the maximum quantity of goods and services that can be bought given the level of income and the prices of goods and services.

The budget constraint is given as follows:

$p_{x}x+p_{y}y=Y$

Here,

  $p_{x}$ is price of carpets

   is price of paintings

Py

is number of carpets

is number of paintings

   is total income

Substitute the values of  $p_{x}$ as $900 ; as $400 and Y as $7200, the budget constraint for person L is:

Py

$900x+400y=7200$

Substituting the values of x as 0,1,2,3,4 and 5 in budget constraint function ,find the value of y as shown in table below:

x	y
0	18
1	15.75
2	13.5
3	11.25
4	9
5	6.75

Plot the values of x and y on graph as shown in the figure:

18. 15 3. 12 15 18 NUMBER OF CARPETS Budget constraint NUMBER OF PAINTINGS

Here, X-axis measures number of carpets and Y-axis measures number of paintings.