
Draw a budget line.

Explanation of Solution
Budget constraint equation:
General budget constraint equation can be written as follows:
Substitute the respective values in Equation (1) to calculate the maximum quantity of Lat can buy (when the consumer buys 0 units of Sco) with initial price.
The maximum quantity of Lat is 120 units.
Substitute the respective values in equation (1) to calculate the maximum quantity of Sco can buy (when the consumer buys 0 units of Lat) with initial price.
The maximum quantity of Sco is 160 units.
Substitute the respective values in Equation (1) to calculate the maximum quantity of Lat can buy (when the consumer buys 0 units of Sco) with new price.
The maximum quantity of Lat is 80 units.
Substitute the respective values in Equation (1) to calculate the maximum quantity of Sco can buy (when the consumer buys 0 units of Lat) with new price.
The maximum quantity of Sco is 106.67units.
Figure 1 illustrates the budget line for the different price levels.
Figure 1
In Figure 1, the horizontal axis measures the quantity of Sco and the vertical axis measures the quantity of Lat. When the income is fixed, increasing price reduces the quantity of goods that can be purchased. This would shift the budget line inward.
Substitute the respective values in Equation (1) to calculate the maximum quantity of Lat can buy (when the consumer buys 0 units of Sco) with new price and new income.
The maximum quantity of Lat is 120 units.
Substitute the respective values in Equation (1) to calculate the maximum quantity of Sco can buy (when the consumer buys 0 units of Lat) with new price.
The maximum quantity of Sco is 160units.
Figure 2 illustrates the budget line for the different price levels.
In Figure 2, the horizontal axis measures the quantity of Sco and the vertical axis measures the quantity of Lat. When the income increases, the quantity of goods that can be purchased would increase. This shifts the budget line outward to the initial level. The impact of increasing price of 50% for both the goods offset by increasing the income by 50% .
Concept Introduction:
Budget line: Budget line (Budget constraint) refers to all the possible combinations of goods and services that can be purchased with the entire income, at a given price level.
Want to see more full solutions like this?
Chapter 25 Solutions
Modern Principles: Microeconomics
- not use ai pleasearrow_forwardNot use ai pleasearrow_forwardHelp me write these economic analysis for Macys one paragraph) Company name/current state of operation of this company - Describe the company's performance in the present economy, whether it is growing or declining, and who are its competitors?arrow_forward
- not use ai pleasearrow_forwardThe following graph plots daily cost curves for a firm operating in the competitive market for sweatbands. Hint: Once you have positioned the rectangle on the graph, select a point to observe its coordinates. Profit or Loss0246810121416182050454035302520151050PRICE (Dollars per sweatband)QUANTITY (Thousands of sweatbands per day)MCATCAVC8, 30 In the short run, given a market price equal to $15 per sweatband, the firm should produce a daily quantity of sweatbands. On the preceding graph, use the blue rectangle (circle symbols) to fill in the area that represents profit or loss of the firm given the market price of $15 and the quantity of production from your previous answer. Note: In the following question, enter a positive number regardless of whether the firm earns a profit or incurs a loss. The rectangular area represents a short-run of thousand per day for the firm.arrow_forwardNot use ai pleasearrow_forward
- Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSONEngineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
- Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education





