tutorial_1 - ECOS 2001 Tutorial 1 Question 1: Your budget...

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ECOS2001 Tutorial 1 1 ECOS 2001 Tutorial 1 Question 1: Your budget is such that if you spend your entire income, you can just afford either 4 units of good x and 6 units of good y or 12units of x and 2 units of y. (1) Draw the budget line. (2) What is the opportunity cost of one unit of good x in terms of good y? (3) What is the opportunity cost of one unit of good y in terms of good x? (4) Write the budget equation that gives you this budget line where the price of good x is 1. (5) Write another budget equation that gives you the same budget line, but where the price of x is 3. Question 2: There are two goods, 1 and 2. You have a total income of I and prices are 1 p and 2 p . Draw the budget line. (1) Suppose that the government takes away m dollars, regardless of your behavior (This is called a lump-sum tax). Draw the new budget line. (2) Instead, suppose that you could consume good 2 at a price of 2 p dollars up to some level 2 x and then the government gives you t dollars per unit of consumption of good 2 in excess of 2 x . Draw the budget line.
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tutorial_1 - ECOS 2001 Tutorial 1 Question 1: Your budget...

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