Question

Each week, Mary selects the quantity of two goods, X and Y that she will consume in order to maximize her utility. She spends her entire weekly income on these two goods. Suppose you are given the following information about the choices that Mary makes over a three-week period, where Px is the price of good X, Py is the price of good Y, and I is income: X Y PX PY Week 1 10 10 $1 $1 20 Week 2 6 7 $1 $2 20 Week 3 186 $1 $ 2 30 Ароор 1.) Using the line drawing fool, graph Mary's budget line for each week. Label the lines L. L2, and L. 2.) Using the point drawing tool, indicate Mary's utility maximizing bundle for each week. Label these points A, B, and C Carefully follow the instructions above, and only draw the required objects. °63 12 15 18 21 24 27 30 Good X

Answer 1

From the given information in the table , we get :

Budget line equation :(Px)X + (Py)Y = I

Mary's budget line for Week 1: ($1)X + ($1)Y = 20

When X=0 , Y=20

When Y=0 , X= 20

And the optimal bundle is given (X=10, Y=10) . So, by plotting this we get the budget line for week 1 as L₁ and bundle as A.

Mary's budget line for Week 2 : ($1)X + ($2)Y = 20

When Y=0, X= 20

When X=0, Y= 10

And the optimal bundle is given (X=6 , Y=7) . So, by plotting this we get the budget line for week 2 as L₂ and bundle as B.

Mary's budget line for Week 3 : ($1)X + ($2)Y = 30

When Y=0, X= 30

When X=0, Y=15

And the optimal bundle is given (X=18, Y=6) . So , by plotting this we get the budget line for week 3 as L₃ and bundle as C.

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