Amy has $70.00 a month to spend on the soap and coffee, i.e., budget per month is: $70
The soap cost is: $3.50, and
The coffee cost is: $14.00
The equation to the budget constraint:
Budget (M) = (Px*Qx) +(Py*Qy)
Now Qx = M/Px and Qy = M/Py
If Amy spends his entire $70 on soap, he can buy 20 soaps i.e., 70/3.5 = 20
If Amy spends his entire $70 on coffee, he can buy 5 coffee’s i.e., 70/14 = 5.
The Amy's budget constraint could be drawn as below:
That means, 1 pound of coffee = 4 bottles of soap.
So, Every time Amy buys a pound of coffee, she is giving up the opportunity to buy:
4 bottles of soap.
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