--%>
Assignment Help - homework help

Budget line and indifference curves

Question:

Monica has been considering buying a mountain bike. Last month Monica had an income of $30,000. The bike's price was $1000, the composite good price was $1, and she decided not to buy the bike.  This month Monica was surprised to get a $10,000 increase in income. The prices of the bike and the composite good are the same, but now Monica decides to buy the bike. Draw a budget line and indifference curves to illustrate this situation. Be sure to label you diagram completely. 

Solution:

Income, m = $30,000, Pb = $1000, Pc = $1

Where, Pb = price of bike.

             Pc = price of composite goods

Therefore, Budget equation is:

c + Pb b = 30000

  1.   c = 30000 - Pb b
  2.   c = 30000 - 1000b

Therefore, putting c on vertical axis, the slope is -1000

Also, vertical intercept = 30000/1 = 30000

         Horizontal intercept = 30000/1000 = 30

The new income = $40,000

Therefore, Budget equation is:

c + Pb b = 40000

  1.   c = 40000 - Pb b
  2.   c = 40000 - 1000b

Therefore, putting c on vertical axis, the slope is -1000

Also, vertical intercept = 40000/1 = 40000

         Horizontal intercept = 40000/1000 = 40

690_budget line and indifference curves.png

   Related Questions in Business Economics

  • Q : Question 7 Question 7: You are given

    Question 7: You are given the following data about two firms: FIRM A Quantity 0 1 2 3 4 5 6 Total revenue ($) 0 10 20 30 40 50 60 Average revenue ($) ___ ___ ___ ___ ___ ___ ___ Marginal revenue ($) ___ ___ ___ ___ ___ ___ Total cost ($) 30 42 50 60 76 100 14

    		•
  • Q : Main philosophical foundations of

    Jeremy Bentham’s musings given main philosophical foundations for: (1) the abolition of slavery. (2) syndicalism. (3) free international trade. (4) feudalism. (5) utilitarianism. Can someone explain/help me w

    		•
  • Q : Determine the monetary prices while

    Dividing monetary prices from each other yields: (v) nominal prices. (w) relative prices. (x) subjective prices. (y) absolute prices. (z) transaction prices. Hello guys I want your advice. Please recommend some vie

    		•
  • Q : Limitation of intermediaries for

    Intermediaries do not classically: (w) reduce transaction costs. (x) absorb risk. (y) try to make profits. (z) cause prices to be more volatile. I need a good answer on the topic of Economic problems. Please give m

    		•
  • Q : Illustrate the changes in Demand

    Illustrate the changes in Demand, Supply and Equilibrium?

    		•
  • Q : Raising consumer surplus problem For

    For the question below, utilize the given information. The market for gizmos is competitive, with an increasing sloping supply curve and a downward sloping demand curve. With no govt. intervention, the equilibrium price is $25 and the equilibrium quantity is 10,000 gi

    		•
  • Q : Problem regarding private firms I have

    I have a problem in economics on Problem regarding private firms. Please help me in the following question. The mass of U.S. output is generated by: (i) Producer cooperatives. (ii) Non-profit organizations. (iii) Private firms. (iv) Government agencie

    		•
  • Q : Factors of account since the Second

    For rapid growth of world trade what are the factors of account since the Second World War?

    		•
  • Q : Barter - Efficiency and the Gains from

    Relative to other systems, economies in that people exchange goods or resources directly along with other people for other goods or resources without using money like a usual denominator rely relatively heavily upon: (i) barter. (ii) specialization. (

    		•
  • Q : Illustrate the advantage and

    Illustrate the advantage and disadvantage of Corporations?

    		•