Question

Assume that a consumer has a given budget or income of $12, and that she can buy 2) only two goods, apples or bananas. The price of an apple is $1.50 and the price of a banana is $0.75.

Answer 1

Answer: 16 Banana's or 8 Apples

Explanation:

Budget constrain is a mathematical expression which shows us the quantity of goods that can be purchases at given prices and income. Since, income of the consumer is limited, he must allocate his consumption in a way that he can buy maximum goods at the given prices.

The budget constrain faced by the person is

$1.50*Q_{A} + 0.75*Q_{B} \leq 12$

If the person spends all his income on Apple's, he buys

$\frac{12}{1.50}$

= 8 Apples

If the person spends all his income on Banana's, he buys

$\frac{12}{0.75}$

= 16 Banana's