Question
(1) Goober Pyle lives in Mayberry, North Carolina. He has a monthly budget of $600. He currently purchases and consumes two goods, X and Y.
(1) Goober Pyle lives in Mayberry, North Carolina. He has a monthly budget of $600. He currently purchases and consumes two goods, X and Y. The prices of goods X and Y are given as = $5.00 per unit and = $2.00 per unit. Draw a diagram to show Pyle's budget constraint. Label the diagram completely, with good X on the horizontal axis and good Y on the vertical axis. Determine the slope of the budget constraint. Show how you calculate the slope. (2) Assume that the price of good X has fallen from $5 per unit to $3 per unit. Draw a new diagram and show the change in Pyle's budget constraint. Include the original budget constraint to show the contrast between the two. Label the diagram completely. Then, determine the slope of the new budget line.
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