Question

. A family in Ethiopia has $100 to spend on food and all other goods for the entire year of 2018. The price of food is $2.00 per kilogram (let’s assume that all food is the same). The price of all other goods is $1.00 per unit.

1. Write the equation for the household’s budget constraint for the year, with income on the left-hand side of the equation.

2. Fill in the following chart so that the quantity purchased on each horizontal line meets the budget constraint.

                                    Food (Q_f)                Other Goods (Q_o)

0 __________

_________ 10

  

___________ 20                          

30                          ____________

____________ 0

c. Solving for Q_owhat is the household’s budget line equation? Solve for Q_ofrom the budget constraint, i.e. rearrange the equation to put Q_oon the left hand side.(no numbers needed for Q_oor Q_f)

d. What is the slope of the budget line? What does its value mean in economic terms? (answer both in general terms and using specific numbers given in this problem)

e. Graph the budget line, using the graphing paper below. Put food on the horizontal axis and other goods on the vertical axis.

Answer 1