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Suppose that there is a household with an income of $200. They are considering buying clothes (C) and Food (F). We are going to abstract
Suppose that there is a household with an income of $200. They are considering buying clothes (C) and Food (F). We are going to abstract away from different types of clothes and food, and just think of them as amorphous units, with a price per unit within each category. The price of clothes (pc) is $25 per unit and the price of food (pf) is $5 per unit. 1. Draw the budget constraint for this household. For full credit, be sure to label the y~ intercept and xintercept. Draw this with food on the x-axis and clothes on the y-axis. [2 points] 2. What is the slope of this budget constraint? [1 point] Hint: This slope should be negative. Suppose that they are considering buying three bundles of goods. 3. For each of the following bundle, state whether they are affordable or not affordable and how you know: [3 points] 3.1. Bundle 1: 6 units of Clothes and 20 units of Food. 3.2. Bundle 2:2 units of Clothes and 30 units of Food. 3.3. Bundle 3: 4 units of Clothes and 20 units of Food
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