Question

Graph the following budgets constraints, use the y-axis for the first product and the x-axis for the second and the increments you feel make it easiest to graph the consumption possibilities:

1) You have a budget of 20$ and can consume one product which costs 4$ or another which costs 5$

2) You have a budget of 50$ and can consume one product which costs 2$ or another which costs 4$

3) Use the same products from problem 2 but double your budget

4) Use the same budget from problem 2 but double the prices

Answer 1

1.

If there is no another-product, the one-product would be ($20 / $4 =) 5 units.

If there is no one-product, the another-product would be ($20 / $5 =) 4 units.

The budget constraint is BC1.

2.

If there is no another-product, the one-product would be ($50 / $2 =) 25 units.

If there is no one-product, the another-product would be ($50 / $4 =) 12.5 units.

The budget constraint is BC2.

3.

Budget becomes ($50 × 2 =) $100

If there is no another-product, the one-product would be ($100 / $2 =) 50 units.

If there is no one-product, the another-product would be ($100 / $4 =) 25 units.

The budget constraint is BC3.

4.

One-product price ($2 × 2 =) $4

Another-product price ($4 × 2 =) $8

If there is no another-product, the one-product would be ($50 / $4 =) 12.5 units.

If there is no one-product, the another-product would be ($50 / $8 =) 6.25 units.

The budget constraint is BC4.

Required graph is as below: BC1 BC2 BC3 4 6.25 12. 5 25