X=view of the sea
Y=wine
Price of X: Px=0
Price of Y: Py=5
Income=10
Assume that a person does not look at the view beyond the point that bores him (when the marginal utility is negative)
a) Sketch the budget constraint
I know the y-int is 2, but i am not sure about the x-int of the budget constraint.
Please help
To sketch the budget constraint, we need to determine the intercepts of the constraint on the graph. The intercepts represent the quantities of X and Y that can be purchased when the entire budget is spent on either good.
Given the following information:
Price of X (Px) = 0
Price of Y (Py) = 5
Income (I) = 10
To find the intercepts, we need to consider two scenarios:
1. When the entire budget is spent on X (Px = 0):
In this case, the budget is fully allocated to good X. So, we calculate the quantity of X that can be purchased by dividing the income by the price of X:
Quantity of X (Qx) = Income (I) / Price of X (Px) = 10 / 0 = undefined
Since we cannot divide by zero, the x-intercept for good X on the budget constraint is undefined.
2. When the entire budget is spent on Y (Py = 5):
In this scenario, the budget is fully allocated to good Y. So, we calculate the quantity of Y that can be purchased by dividing the income by the price of Y:
Quantity of Y (Qy) = Income (I) / Price of Y (Py) = 10 / 5 = 2
Therefore, when the entire budget is spent on good Y, the y-intercept on the budget constraint is 2.
Now, let's sketch the budget constraint on the graph:
- Plot the y-intercept at point (0, 2).
- Since the x-intercept is undefined for good X, the budget constraint will be a vertical line parallel to the y-axis, passing through the y-intercept.
The final sketch will show a vertical line passing through point (0, 2) on the graph. This represents the budget constraint for the given scenario.