Explain the concept of budget line and indifference curve

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Reference no: EM133564145

Assignment:

Suppose a consumerhas a budget of RM300 to spend on two goods: laptops(X) and smartphones (Y). The price of laptops is RM150 each, and the price of smartphones is RM50 each.

1. Draw the consumer's budget line and an indifference curve for laptops and smartphones. Label the axes and points appropriately. (Students are required to construct the budget equation) (5m)

Diagram: Budget Line (1m), indifference curve (1m), y-axis & x-axis with labels (1m), optimal point (1m), budget equation (1m)

2. Explain the concept of the budget line and indifference curve. How do they represent the consumer's choices and preferences without using utility functions? (5m)

Explanation (5m)

3. Assume the consumer is currently at point A on the budget line, where they are purchasing 2 laptops and 4 smartphones. Analyze the consumer's trade-offs at this point and explain why this combination of goods is affordable. (5m)

Explanation (3m), calculation (2m)

4. Discuss how changes in the prices of laptops and smartphones would affect the consumer's budget line and their optimal consumption point. Analyze how a decrease in the price of laptops or smartphones would impact their consumer equilibrium.

Reference no: EM133564145

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