Question

Suppose you are given the following data:                           Price per unit of Good A     &n

Suppose you are given the following data:  

                        Price per unit of Good A                    $10

                        Price per unit of Good B                     $5

                        Consumer Income                               $2,000

What would be the equation for a budget constraint, putting it into slope-intercept form?

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Answer #1

The equation of Budget Constraint:

- Price of A * Quantity of A + Price of B * Quantity of B = Income

10*Qa + 5*Qb = 2000

Qa = Quantity of A, Qb = Quantity of B

Now, Slope-intercept form is y = mx + b, where m is a slope, b is intercept

5Qb = 2000 - 10Qa

Qb = 400 - 2 Qa

Qb = - 2 * Qa + 400 is the slope-intercept form of budget constraint.

According to the above equation, the slope of budget constraint is -2, that means for 1 additional unit of good A, the consumer has to give up 2 units of good B.

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