Budget Constraint Graphing?
The budget constraint is expressed as p1X1+p2X2≤Y. Suppose that p1= $2.5,p2= $8, and Y= $100.
•(a)Graph the budget line in (X1, X2)-space, and please label the axes, intercepts and slope of the budget line, and opportunity set.
•(b)Why do we search along the budget line, instead of throughout the whole opportunity set, for the optimal bundle?
•(c)Suppose the the price of X2 falls top′2= $5. How does the picture from part(a) change?
•(d)Suppose that income falls to Y= $75 (and we still have that the new p′2= 5 from part(c)). How does the picture from part(c) change?
- OiyLv 611 months agoFavorite Answer
Xi is vertical and X2 is horizontal as usual. The budget line is linear with connecting two points, 40X1 and 12.5X2.