Question

Suppose your Grandma gave you $20 for your birthday. You have decided to use your money to buy your lunches this week. You can get lunch from a fast food restaurant for $6 or you can get a Convenience lunchbox from the grocery store for $2.

1. What is the opportunity cost of the one lunch at a fast food restaurant?

2. Draw the budget line for this example. Be sure to label all its parts.

Answer 1

Total money to be spent is $20. Price of lunch at restaurant is $6 and that from a store is $2. A total of 20/6 lunches can be purchased from restaurant or a total of 20/2 = 10 luches can be purchased from the store

1) the opportunity cost of the one lunch at a fast food restaurant is 6/2 = 3 lunches from the grocery store

2) Budget will be a downward sloping line with intercepts 20/6 lunches from restaurant and 20/2 = 10 luches from the store