Question

1) Miranda Currently earns $48 per week and consumes only burgers and fries.

a) Determine Miranda's budget constraint in a table or diagram. Assume that burgers and fries both cost $4

b) Explain how this model illustrates the basic economic concepts of scarcity, choice and opportunity cost.

Answer 1

b) The model shows that resources are scarce by the budget constraint of the maximum level of consumption that is affordable in the given income .

A person can allocate the scarce resource or income in many ways between the two goods ( burgers and fries ) . The consumption choice bundles locus forms the budget line .

When a person decides to buy more burgers he has to forgo some fries because his income is constant . The slope of the line gives us the opportunity cost of consumption .