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

Assignment Help:

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.


Related Discussions:- Write out the equation or draw the budget line

Facts about mortgages, Lenders in the US insist upon ...

Lenders in the US insist upon some kind of mortgage insurance. There are broadly two types of mortgage insurance - one is

Simple average of the outcomes - time constraint, 1. Your welfare depends o...

1. Your welfare depends on how much time you travel T and how much time you play P and is the product of the two, i.e.,  W = T * P (a) The total amount of time you have is 10 ho

Explain exchange rate risk, Explain Exchange Rate Risk Exchange-rate ri...

Explain Exchange Rate Risk Exchange-rate risk denotes to the risk the swap bank faces from fluctuating exchange rates throughout the time it takes the bank to lay off a swap it

Non-traditional mortgages, Non-traditional mortgages also referred to...

Non-traditional mortgages also referred to as Alternative Mortgage Instruments (AMIs), do not have level monthly payments, but employ some other structure of payment.

Immunization, In 1952, to provide equilibrium between assets and liab...

In 1952, to provide equilibrium between assets and liabilities of insurance companies, Frank Redington, an English actuary, proposed interest rate immunization te

Strategic management, Develop and implement strategic plan using bounce fit...

Develop and implement strategic plan using bounce fitness as case study

Find out eps, The financial manager of A ltd.co. expects that its EBIT in t...

The financial manager of A ltd.co. expects that its EBIT in the current year is 10,000. The firm has 5% Deb. Amounting to Rs. 40,000., while 10% Pref. Share amounts to Rs. 20,000.

Evaluation of credit policy, Q. What is Evaluation of Credit Policy? Ev...

Q. What is Evaluation of Credit Policy? Evaluation of Credit Policy: - A credit policy is prepared to maintain the investment in receivables at optimum level. Receivable Turnov

How is present value affected by a change in discount rate, How is present ...

How is present value influenced by a change in the discount rate? Present value is oppositely related to the discount rate.  Alternatively, present value moves in the reverse dire

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd