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Sketch the household budget constraint

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Reference no: EM132414813

Problem: Suppose that the price of X is $10 and the price of Y is $20 and a hypothetical household has $1000 to spend per month on goods X and Y.

Required:

Question 1: Sketch the household budget constraint where the amount of Y is measured along the vertical axis and the amount of X is measured along the horizontal axis.

Question 2: Assume that the household splits its income equally between X and Y. Show where the household ends up on the budget constraint.

Question 3: Suppose that the household income doubles to $2000. On your graph in part (a), sketch the new budget constraint facing the household.

Question 4: Suppose after the change the household spends $400 on Y and $1600 on X. This implies that X is a normal or inferior good? What about Y?

Reference no: EM132414813

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