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 lumpsum 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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 One '09
 NONE
 Charlie

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