Question

Consider Mike's budget constraint for soda and burgers. Each week, Mike has $12 to spend on burgers and sodas. The price of a burger is $3 and the price of a soda is $2. If burgers are the good on the X axis, then which of the following statements is correct?

	a.	the slope of Mike's budget constraint is equal to -2/3 and the Y-intercept is 4
	b.	the slope of Mike's budget constraint is equal to -3/2 and the Y-intercept is 4
	c.	the slope of Mike's budget constraint is -3/2 and the Y-intercept is equal to 6
	d.	the slope of Mike's budget constraint is -2/3 and the Y-intercept is equal to 6

Answer 1

Answer: b.   the slope of Mike's budget constraint is equal to -3/2 and the Y-intercept is 4

If the price of the burger is $3 and the price of soda is $2. And his income is $12. Then his budget constraint will be

2*S + 3*B = 12

A budget constraint show all the combination of bundle a person can purchase given the prices and his income.

Soda is on the x-axis then, the burger will be on the y-axis.

The slope of a budget line is the ratio of it's prices that is -P_x/P_y, which equals to -3/2

Now, consider he only consumes burger, that means soda is 0

3*B = 12

B = 4