Question

In producing a budget constraint line for combinations of staples and paper clips, which are sold by the box, a student labels the points (0,5) and (10,0) along the line. Staples occupy the vertical axis, while paperclips are situated on the horizontal axis. Therefore, boxes of ____.

Answer 1

Answer:

Boxes of staples (maximum) that can be purchased by available income are 5.

Maximum boxes of paper clips that can be purchased by available income are 10.

Explanation:

Budget Line is the graphical representation of product combinations, that consumer can purchase with prices & income (spending all income).

It is downward sloping - as given same income & price levels, one good's consumption can be increased by reducing consumption of other good.

The intercept of downward sloping budget line is the maximum amount of that axis good which that consumer can consume with given income, price.

That maximum amount of purchasable good is Income/price of that good. Eg: Income = 100, Price of Good 1 on X axis = 10, Price of Good 2 on Y axis = 5. So :

• Maximum amount of good 1 purchasable = 100/10 = 10. It is on X axis, x axis intercept is (10,0) ; and
• Maximum amount of good 2 purchasable =  100/5 = 20. It is on Y axis, y axis intercept is (0,5)

Good 1 & Good 2 are analogous to Staples & Paper Clips respectively.