ECOS2001 Tutorial 1 Answers
1
ECOS2001 Intermediate Micro Economics
Suggested sketch of the answers for Tutorial 1
Question 1:
Your budget is such that if you spend your entire income, you can 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.
Draw a straight line connecting the two points (4,6) and (12,2).
Good Y
8
16
Good X
(2) What is the opportunity cost of one unit of good x?
The slope is -8/16 = -0.5, meaning that increasing x by 1 unit will reduce y by 0.5
units. Thus, the opportunity cost of one unit of good x is 0.5 units of y.
(3) What is the opportunity cost of one unit of good y?
Increasing y by 1 unit will reduce 2 units of good x. Thus the opportunity cost of
one unit of good y is 2 units of good x. (This is the inverse of the slope of the
budget line).
(4) Write a budget equation that gives you this budget line, where the price of x is 1.
x + 2y = 16
(5) Write another budget equation that gives you the same budget line, but where the
price of x is 3.
3x + 6y = 48

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