Question

2. Jim has an income of $100. The price of an ice cream is $5, and the price of a chocolate is $2 (a) Write down Jim's budget set, and graph it. Mark the budget line on the graph (Assume ice cream is good-x and chocolate is good-y) (b) How will the budget line change if Jim's income increases to $150? Show with graph (c) How will the budget line change if the price of an ice cream decreases to $2, and the price of chocolate remains unchanged? Compare with the budget line in part 2 (a) in a new graph (d) How will the budget line change if the price of an ice cream increases to $10, and the price of a chocolate increases to $5? Compare with the budget line in part 2(a) in a new graph.

Answer 1

Ans:

a) 50 20 30 50 0 50 10 gody

Explanation:

Given money income or budget must be spend on these two goods.

Y = (Price of ice cream * Quantity of ice cream ) + ( Price of chocolates * Quantity of chocolates)

If the entire income spend on one good then the quantity purchased will be obtained by following formula;

Total income or budget / price of the good