Based on the budget line shown in the diagram, if the consumer's money income is $200, the: A. price of C is $40 and the price of D is $20.
What is a budget line?
A budget line can be defined as a straight line that generally slopes downwards and comprises every possible combinations of the two (2) products which can be purchased by a consumer at a given market price, and with a particular budget (income).
By critically observing the budget line shown in the diagram, we can logically deduce the following points:
When the quantity demanded (D) is 10, the quantity demanded (C) is 0, so we have:
Quantity demanded (D), Q₁ = 10.
Quantity demanded (C), Q₂ = 0
Y = (P₁ × Q₁) + (P₂ × Q₂)
200 = (P₁ × 10) + (P₂ × 0)
200 = 10P₁
P₁ = 200/10
P₁ = 20
Therefore, the price of D is $20.
When the quantity demanded (D) is 0, the quantity demanded (C) is 5, so we have:
Quantity demanded (D), Q₁ = 0.
Quantity demanded (C), Q₂ = 5.
Y = (P₁ × Q₁) + (P₂ × Q₂)
200 = (P₁ × 0) + (P₂ × 5)
200 = 5P₂
P₁ = 200/5
P₁ = 40
Therefore, the price of C is $40.
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Complete Question:
Refer to the budget line shown in the diagram. If the consumer's money income is $200, the
A. price of C is $40 and the price of D is $20.
B. prices of C and D cannot be determined.
C. price of C is $5 and the price of D is $10.
D. consumer can obtain a combination of 5 units of both C and D.
