Question

Natalie owns 25 apples and 10 grapefruits. She has no income from any other source, but she can buy or sell either apples or grapefruits at their market prices. The price of grapefruits is five times the price of apples. There are no other commodities of interest.

How many apples could Natalie have if she is willing to do without grapefruits? ______

How many grapefruits could Natalie have if she is willing to do without apples?  ______

Draw Natalie's budget set using the line tool and label her endowment bundle with the point tool in the graph below. The horizontal axis denotes quantity of apples, and the vertical axis denotes quantity of grapefruits.

Answer 1

The price of grapefruit is five timees the price of apples.

This means that 1 grapefruit equals five apples.

Natalie has 10 grapefruits and 25 apples.

If Natalie is willing to give away all 10 grapefruits then she can have (10 * 5) 50 apples more and would have a total of 75 apples.

If Natalie is willing to give away all 25 apples then she can have (25/5) 5 more grapefruits and would have a total of 15 grapefruits.

So,

If she is willing to do without grapefruits, she could have 75 apples.

If she is willing to do without apples, she could have 15 grapefruits.

Following is the required budget constraint -