Quiz 2

Q:  If prices are Px=2 and Py=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 personís 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 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.