Question

Harry has $100 to spend on either vegetable or meat. The price of 1 kilogram of vegetable is $5, while the price of 1 kilogram of meat is $10.

Instead of $100, now Harry has $200 income to spend.
(d.i) Write down his new budget constraint equation.
(d.ii) Plot new budget constraint(specify the intercepts and the slope).

Following part (d), suppose now the price of 1 kilogram of vegetable has increased to $10. The price of meat stays the same.

(e.i) Write down his new budget constraint equation.
(e.ii)  Plot new budget constraint(specify the intercepts and the slope).

Answer 1

y suppose Harry has & 1 ov to spend on either vegetable or meat The price of 1 kilog ran of vegetable is & S ie er- $5 and price of 1 kilogram of meat is $10 jic Py = 10 Thus we denote vegetables by x and meat by y and Price of vegetable by px and Price of meat by Py. Now, I stead of $ 100 now spend. i. c. now in come M = Harry has $200 income to + 200 I I Now Harry's budget constraint will be?.... . 22 Max Px it y py 200 = 5x + 10 y L in af Harry spinds his entire in come on vegetables and a 'no meat them ass ming wC Plot vegetable on the horizontal anes and meat on the uutical anis, we will I get the horizontal inth cept of the buda it constraint. by substituting y o u dniu 2Nij do yond zu einu a Hence, 200 = 5x + 10 10. TXO XS 40 MIN 2 Bodenstau !!! It Harry spind si his entire income on meat and no lo vegetables, then we will get the uutical intercept of bod the budget constraint by substituting X=0 woord jie 200 = 5(0) + 10 y a) y 20 www . NOW We know that the slope of the budget constraint is px - f_5_ 1 N ow by Joining horizontal cs Scanned with CamScanner

and vutical in tucep can budget draw Harry's new ne constraint Cal in tucept, we stunt AB Meat cy) AB 3008 Sol y B 20_1 _HOA Vegetable(x) P10 Now, following purt (d) suppose now, the price of I Kilog nam of vegetable has increased to 12 P. 10 ust a T.C. Now PX= $10 . The price of meat ic. Ry remains in the same in t he normal Lei) Now, his budget constraint will bet postaje pod H sol soul 200= 10x + Joy.) 112 engt Harry spunds his entire income on, vegetable I and no meat, then horizontal intncept of the budget line will be by substituting Y=0 in the budait contraint, equation., 2 ) ' Hence, 200 = 10x + 1010) E) X = 20 V S229 I vertical in Ancept remains same at 20. Now slope of the budget constraint will be px 0. 10. . : mod su Now by Joining horizontal you hu Toining horizontal and vut cal in tucept we can draw the new budget Constraint ABI Scanned with CamScanner