Question

If the price of good x is $10 and the price of good y is $5, how much of good x can the consumer purchase if her income is $15 and she spends it entirely on purchasing good x?

Answer 1

1.5 units of good x can the consumer purchase if her income is $15 and she spends it entirely on purchasing good x.

A budget constraint in economics refers to all the combos of goods and services that a consumer can buy given current prices and his or her given income.

Consumer theory examines the parameters of consumer choices using the theories of a budget constraint and a preferential map.

In the two-good case, both theories have a ready graphical representation.

Consumers can only buy as much as their income allows, so they are limited by their budget.

The equation of budget constraint is:

$P_{x}$*x + $P_{y}$*y = m

where $P_{y}$ is the price of good X,

$P_{y}$ is the price of good Y,

x is units of good X,

y is units of goods Y,

and m is income.

m = 15

Px = 10

Py = 5

15 = 10x + 5y

Since she spends it entirely on purchasing good x

15 = 10x + 0

15 = 10x

x ​= 15/10

  = 1.5

Hence, The consumer can purchase an amount of Good X = 1.5.

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