Question
A family in Ethiopia has $100 to spend on food and all other goods for the entire year of 2018. The price of food is
A family in Ethiopia has $100 to spend on food and all other goods for the entire year of 2018. The price of food is $2.00 per kilogram (let’s assume that all food is the same). The price of all other goods is $1.00 per unit.
- Write the equation for the household’s budget constraint for the year, with income on the left-hand side of the equation.
- Fill in the following chart so that the quantity purchased on each horizontal line meets the budget constraint.
Food (Qf) Other Goods (Qo)
0 __________
_________ 10
___________ 20
30 ____________
____________ 0
c. Solving for Qowhat is the household’s budget line equation? Solve for Qofrom the budget constraint, i.e. rearrange the equation to put Qoon the left hand side.(no numbers needed for Qoor Qf)
d. What is the slope of the budget line? What does its value mean in economic terms? (answer both in general terms and using specific numbers given in this problem)
e. Graph the budget line, using the graphing paper below. Put food on the horizontal axis and other goods on the vertical axis.
Step by Step Solution
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a The equation for the households budget constraint for the year can be written as Income I Price of ...Get Instant Access to Expert-Tailored Solutions
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