Question

Suppose that a consumer had a budget of $35 to spend on Good X and Good Y. The price of Good X is $4 and the price of Good Y is $1. The store selling Good X is offer a deal where you can buy one unit of Good X and get the next unit of Good X that you buy for 75% of the original price. Determine the X-intercept of the budget line for the consumer in this situation.

Answer 1

M = 35, Px = 4

Maximum of goods X = M/Px = 35/4 = 8.75 units. Thus, the maximum number of units of good X consumer can buy without offer is 8.75 units

Now if we are to bundle 8 units of Good X as 1 unit, then the price of this unit will be = $4 + 75%of$4 = 4 + 3 = $7

Maximum quantity of this bundle that can be bought is 35/7 * 2 = 10 units. So, that means we can buy 10 units of Good X