Q: If prices
are Px=2 and Py=1, how much money would it take to
the bundle (3,4)? What is the
equation for the Budget Constraint if (3,4) is a personís optimal bundle?
figure out how much a bundle costs you add up the amount spent on each good.
For good x a total of Px x is spent and on good y a total of Py
y is spent. So the total is Px
x + Py y. For this
problem that is 2(3) +1(4)=6+4=10. It
would take 10 dollars to purchase the bundle (3,4).
Notice we are really just using the formula for the Budget Constraint I=
Px x + Py y, where we did not know the I. After calculating I we can write the BC as I= Px x
+ Py y which is 10=2x + 1y.