Given allowance=$6 to spend on mangoes &bananas. The price of bananas =$0.50/unit; the price of mangoes =$1/unit.
(i)Write down your budget equation. What is slope of budget line?
(ii)If you spent the entire allowance on bananas, how many could you buy?
(iii)If you spent the entire allowance on mangoes, how many could you buy?
(iv)Draw the budget line with mangoes on vertical axis and label B1.
(v)Suppose the price of mangoes increases to $1.5. Write the new budget equation. Draw new budget line on same graph and label B2.
(vi)On your graph shade the region which contains bundles you could afford under the old prices but can’t afford under the new prices.
(vii)Suppose that instead of a price change, your allowance increases to $8. So the price of bananas is $0.50 per unit and price of mangoes is still $1 per unit. Write new budget equation. Draw on same graph.
answers:
i) 1M + 0.5B =6, slope: -Pm/Pb (it matters what i put as the y-axis right?)
ii) 12 units bananas
Tags: