Question

If you have an income of $40 to spend, comodity 1 costs $2 per unit, and comodity 2 costs $10 per unit, then the equation for your budget line can be written as...

	a.	x1+ 5x2 = 20
	b.	12(x1+ 5x2) = 40
	c.	(x1+ 5x2) /12= 40
	d.	x1/2 + x2/10 = 40
	e.	3x1+ 11x2 = 41

Answer 1

Hi Student,

I have answered your question. Please let me know if you have any query in the comments.

Answer –

You have an income of $40 to spend. Commodity 1 costs $2 per unit and commodity 2 costs $10 per unit.

Let us assume that I am buying x1 units of Commodity 1.

So, I would spend $2 * x1 = $2x1 on Commodity 1.

Similarly, let us assume that I am buying x2 units of Commodity 2.

So, I would spend $10 * x2 = $10x2 on Commodity 2.

Thus, the total amount that I spend on Commodity 1 and Commodity 2 = 2x1 + 10x2.

Now, I have an income of $40.

So, 2x1 + 10x2 = 40;

Or, x1 + 5x2 = 20.

So, the equation for your budget line can be written as : x1 + 5x2 = 20 (Option A).

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