Re: budget constraint

Posted by SM on May 17, 2016; 4:34pm
URL: http://discussion-forum.276.s1.nabble.com/budget-constraint-tp7600842p7600853.html

Hi,

For this the answer will be 16.

here, let the income be M. Given, X=4,Y=6 and X'=12 and Y'=2,
The quantities are given to us, equating the two budget constraints (since the income (M) is same) we have: (px and py are prices of X and Y)

4px+6py=12px+2py
4py=8px
py=2px

Thus, the price of y is twice that of x.

px=1 (from above calculations), py =2

Since income is 16 (4*1+6*2), at y=0, we will consume, M/px= 16 units of X