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

The answer to this question can be defined as follows:

Step-by-step explanation:

Please find the graph in attachment.

In point a.

The candy bar price
`= (20)/(40) = (1)/(2) = \$ 0.50`

In point b.

The music download price
`= (20)/(20) = \$ 1`

In point c.

The opportunity cost for music download
`= (\$ 1)/(\$ 0.50) = 2 \ candy \ bar`

In point d.

The opportunity cost for a candy bar
`= (\$ 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.