Write out the equation or draw the budget line, Financial Management

You have $21 to spend on prawns and potatoes. Prawns cost $20 per kilo and potatoes cost $2 per kilo.  

(a) Supposing you can buy as much or as little as you want of prawns and potatoes and you will spend the entire $21, then write down your budget constraint. You may simply write out the equation or draw the budget line. You don't need to do both.  

(b) If you buy 2.5 kilos of potatoes, how many kilos of prawns can you afford?  

(c) If your wants are to have twice as many (kilos) of prawns as (kilos) of potatoes, show that you would buy 0.5 kilo of potatoes and exactly 1 kilo of prawn.  How much money will you spend on each? Remember you must spend exactly $21.  

(d)  If the price of potatoes rises to $3 per kilo and the price of prawns falls to $18 per kilo, then can you still purchase the quantity of prawns and potatoes you chose in (c)?

Based on your answer, argue that your welfare is likely to be greater in this new situation where the price of potatoes is higher, but the price of prawns is lower.

Posted Date: 4/1/2013 3:26:16 AM | Location : United States







Related Discussions:- Write out the equation or draw the budget line, Assignment Help, Ask Question on Write out the equation or draw the budget line, Get Answer, Expert's Help, Write out the equation or draw the budget line Discussions

Write discussion on Write out the equation or draw the budget line
Your posts are moderated
Related Questions
Divestment of company re-organisations Adisinvestment or divestment is selling part of the business or subsidiary to another third party. Reasons and features for divestme

Q. Security Required in Bank Finance? 1) Hypothecation: Under this arrangement, the borrower is provided with working capital finance by the bank against the security of mova

I keep getting different answers in excel and the financial calculator. is there someone who can walk me through this problem step by step: You plan to buy a new house for $250,0

Calculate the price of Winnebago stock (Winnebago has no debt so this is the market value of the firm seperated by the number of common shares outstanding.) from the cashflows you

Abnormal Earnings Valuation Model Abnormal Earnings Valuation Model is a method to analyse the value of the firm. The value of the firm can be the sum of three components - the

Bond indexation serves the purpose of replicating the performance of a predetermined benchmark as closely as possible. These benchmarks are generally very broader

Task I am sure you are aware that the corporate annual meeting is coming up soon. As part of the Treasurer''s presentation, I have been asked to propose a Special Capital Require

Organization and Management Pattern of UTI UTI has a full-time Chairman with an Executive Trustee reporting to him. The Executive Trustee looks after the Corporate Office, Zona

How can we measure Total return- Measuring the Rate of Return Total return can be defined as: Total returns = (Cash payment received + Price change over the period) / Purcha

identify five stakeholder groups and breifly explain their financil and other objectives