Assume that the unit price of good A is $4, and the unit price of good B is $5. If an individual has income of $44, which consumption bundles of (good A, good B) is on the edge of the budget constraint?
A) (5,5)
B) (5,4)
C) (6,4)
D) (6,5)

Question

Quizplus · Accepted Answer

The budget constraint can be represented as 4A + 5B = 44.

To find the consumption bundles on the edge of the budget constraint, we can set the equation equal to the total income and solve for B in terms of A:

5B = 44 - 4A

B = (44 - 4A)/5

Now we can substitute different values of A to find the corresponding values of B that lie on the edge of the budget constraint:

- When A = 0, B = 8.8, which is beyond the budget constraint. 
- When A = 1, B = 6, which is on the budget constraint. 
- When A = 2, B = 3.2, which is inside the budget constraint.

Therefore, the only consumption bundle that lies on the edge of the budget constraint is (6,4), so the answer is C.

Assume That the Unit Price of Good a Is $4