Question

Buget Constraint. Suppose that Russ has budgeted $20 a month to by candy bars, music downloads, or some combination of both. If Russ spends all his budget on candy bars he can obtain 40 bars a month; if he buys only downloads, he can buy 20 a month. Draw the Budget constraint line.
a. What is the price of a candy bar?
b. What is the price of a music download?
c. What is the opportunity cost of a music download?
d. What is the opportunity cost of a candy bar?
e. Would the opportunity cost of each good change if Russ decided to increase his monthly budget to $30 for the two items?

Answer 1

Answer:

The answer to this question can be defined as follows:

Explanation:

Please find the graph in attachment.

In point a.

The candy bar price $= \frac{20}{40} = \frac{1}{2} = \ 0.50$

 In point b.  

The music download price $= \frac{20}{20} = \ 1$

In point  c.  

The opportunity cost for music download $= \frac{\ 1}{\ 0.50} = 2 \ candy \ bar$

In point d.  

The opportunity cost for a candy bar $= \frac{\ 0.50}{\ 1} = \ 0.50 \ music \ download$

In point e.  

The cost of opportunity won't change as the price of the items is constant.