Suppose a consumer only buys armadillos (A) and groundhogs (G). Armadillos cost

Question

Suppose a consumer only buys armadillos (A) and groundhogs (G). Armadillos cost $10 each and groundhogs cost $20 each. The consumer has $100 dollars to spend on these two goods.

a. The equation for this consumers' budget constraint is ___________ The maximum number of armadillos the consumer could buy is _______?

b. Could the consumer choose to buy 7 armadillos and 2 groundhogs? Not enough information to determine/ No, since consumer would have some income left over if choose that bundel/ No, because the consumer does not have enough income to afford that bundle/ Yes, since 10*7 + 20*2 = 100?

Now suppose the price of groundhogs falls to $10.

c. This would cause the budget constraint to Shift out/ Rotate out/ Shift in/Rotate in.?

d. If the consumer wanted to buy 7 armadillos, what is the maximum number of groundhogs s/he could now buy?

Explanation / Answer

a)

10A+20G = 100,

10

b)no, because he does not have enough money

c)shift out

d)one

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