Assume that the unit price of good A is $2, and the unit price of good B is $2. If an individual has income of $20, which consumption bundles of (good A, good B) is on the edge of the budget constraint?
A) (5,5)
B) (5,4)
C) (6,3)
D) (6,5)

Question

Quizplus · Accepted Answer

The budget constraint is 2A + 2B = 20. If the individual spends $10 on good A, they will have $10 left to spend on good B. This gives the consumption bundle (5,5). If the individual spends $12 on good A, they will have $8 left to spend on good B. This gives the consumption bundle (6,4). If the individual spends $14 on good A, they will have $6 left to spend on good B. This gives the consumption bundle (7,3). If the individual spends $16 on good A, they will have $4 left to spend on good B. This gives the consumption bundle (8,2). If the individual spends $18 on good A, they will have $2 left to spend on good B. This gives the consumption bundle (9,1). If the individual spends $20 on good A, they will have $0 left to spend on good B. This gives the consumption bundle (10,0). The consumption bundles (5,5), (6,4), (7,3), (8,2), (9,1), and (10,0) are all on the edge of the budget constraint.

Assume That the Unit Price of Good a Is $2