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Problem I You have an income of$4o to spend on two commodities. Commodity I costs $10 per unit, and commodity 2 costs $5 per unit.

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Problem I You have an income of$4o to spend on two commodities. Commodity I costs $10 per unit, and commodity 2 costs $5 per unit. 1. Write down the budget equation. 2. Ifyou spend all your income on commodity 1, how much could you buy? Ifyou spend all your income on commodity 2., how much could you buy? 3. Clearly draw budget line and the budget set on a graph. 4. Suppose the price of commodity 1 falls to $5 while everything else stays the same. Write down the new budget equation. Redraw the graph showing the original budget line and this new one. 5. Suppose the amount you were allowed to spend falls to $30, while the prices of both commodities remain at $5. Write down the new budget equation. Clearly draw all the three budget lines on the same graph

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