Concept explainers
Sketch the budget constraint.
Explanation of Solution
Maximum unit of good Y (0 unit of good X is purchased) that a person can purchase with the given income and price can be calculated by using the following formula:
Substitute the respective values in Equation (1) to calculate the maximum unit of Y that can be purchased.
The maximum unit of Y is 200 units.
Maximum unit of good X (0 unit of good Y is purchased) that a person can purchase with the given income and price can be calculated by using the following formula:
Substitute the respective values in Equation (2) to calculate the maximum unit of X that can be purchased.
The maximum unit of X is 50 units.
Option (a):
Figure 1 shows the budget constraint of case “a”.
In Figure 1, the vertical axis measures the price of good Y and horizontal axis measures the price of good X. The downward sloping cure is the budget constrain of the household.
Option (b):
The maximum quantity of good X and Y is 25 and 40 respectively that is obtained by using Equation (1) and (2).
Figure 2 shows the budget constraint of case “b”.
In Figure 2, the vertical axis measure price of good Y and horizontal axis measures price of good X. The downward sloping cure is the budget constrain of the household.
Option (c):
The maximum quantity of good X and Y is 40 and 5, respectively that is obtained by using Equation (1) and (2).
Figure 3 shows the budget constraint of case “c”.
In Figure 3, the vertical axis measures the price of good Y and horizontal axis measures the price of good X. The downward sloping cure is the budget constrain of the household.
Option (d):
The maximum quantity of good X and Y is 20 and 50, respectively that is obtained by using Equation (1) and (2).
Figure 4 shows the budget constraint of case “d”.
In Figure 4, the vertical axis measures the price of good Y and horizontal axis measures the price of good X. The downward sloping cure is the budget constrain of the household.
Option (e):
The maximum quantity of good X and Y is 4 and 6, respectively that is obtained by using Equation (1) and (2).
Figure 5 shows the budget constraint of case “e”.
In Figure 5, the vertical axis measures the price of good Y and horizontal axis measures the price of good X. The downward sloping cure is the budget constrain of the household.
Option (f):
The maximum quantity of good X and Y is 24 and 4, respectively that is obtained by using Equation (1) and (2).
Figure 6 shows the budget constraint of case “f”.
In Figure 6, the vertical axis measures the price of good Y and horizontal axis measures the price of good X. The downward sloping cure is the budget constrain of the household.
Option (g)
The maximum quantity of good X and Y is 4 and 24, respectively that is obtained by using Equation (1) and (2).
Figure 7 shows the budget constraint of case “g”.
In Figure 7, the vertical axis measures the price of good Y and horizontal axis measures the price of good X. The downward sloping cure is the budget constrain of the household.
Budget constraints: Restrictions imposed on household’s choices by the factors like wealth, income and price of product are termed as the budget constraint.
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Chapter 6 Solutions
Principles of Economics (12th Edition)
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