# Budget Line (Chapter 2 In The Book) Problem 1. You Have \$20 To Spend On Apples And Bananas. A Pound Of Apples Costs 4...

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Budget line (Chapter 2 in the book) Problem 1. You have \$20 to spend on apples and bananas. A pound of apples costs 4 dollars, and a pound of bananas costs 2 dollars. a) Write your budget constraint: b) If you spent all your money on apples, how many pounds of apples could you buy? c) If you spent all your money on bananas, how many pounds of bananas could you buy? d) Draw the budget line in the apples-bananas space. e) Suppose the price of a pound of apples drops down to \$2 while everything else stays the same. Write down the new budget line, and on the previous graph draw the new budget line using different color. 1) Suppose the amount of money doubles and is \$40, while all prices remain at \$2 dollars. Write down the new budget line, and use different color to draw this new budget line on the previous graph, g) Shade the area representing commodity bundles that you can afford with the budget line in part () but not in part (a).

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