Quiz 2

Q: If prices
are P_{x}=2 and P_{y}=1, how much money would it take to
purchase

the bundle (3,4)? What is the
equation for the Budget Constraint if (3,4) is a person’s optimal bundle?

A: To
figure out how much a bundle costs you add up the amount spent on each good.
For good x a total of P_{x }x is spent and on good y a total of P_{y}
y is spent. So the total is P_{x
}x + P_{y} 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=
P_{x }x + P_{y} y, where we did not know the I. After calculating I we can write the BC as I= P_{x }x
+ P_{y} y which is 10=2x + 1y.