Question

Assume that there are two goods, good X and good Y. Good Y is measured on the vertical axis and the intercept of the budget line equals 10. The price of good Y equals $5 and the price of good X equals $10. After Sharay buys 5 units of good Y, how many units (or parts of a unit) of good X can Sharay buy?

A. O 0.5
B. 2.5
C. 5.0
D. impossible to determine from the information given

Answer 1

After spending $25 on 5 units of good Y, Sharay can purchase 2.5 units of good X with the remaining $25 from her total budget, assuming the budget is the maximum possible expenditure on good Y.

Step-by-step explanation:

The question involves understanding how to allocate a budget between two goods, namely good X and good Y. Assuming good Y is priced at $5 per unit and its intercept on the budget line is 10 units, after Sharay spends $25 on 5 units of good Y, she has to calculate how many units of good X she can purchase with the remaining budget.

Good X costs $10 per unit. To find out how many units of good X Sharay can buy, subtract the amount already spent on good Y from the total budget (which is equal to the maximum units of good Y times its price). In this case, the budget line intercept amounts to $50 ($5*10), and after purchasing 5 units of good Y, Sharay has spent $25 ($5*5), leaving her with $25 ($50 - $25) for good X. With good X priced at $10, Sharay can then purchase 2.5 units of good X ($25/$10).