A consumer has $20 that he wants to spend on two goods: pens priced at $2 each and pencils priced at $1 each.Which of the following correctly represents his budget constraint?
A) $20 = ($2/Quantity of pens) + ($1/Quantity of pencils)
B) $20 = ($2 × Quantity of pens) + ($1 × Quantity of pencils)
C) $20 = ($3/Quantity of pens + Quantity of pencils)
D) $20 = $3 × (Quantity of pens - Quantity of pencils)

Question

Quizplus · Accepted Answer

The budget constraint represents the combinations of pens and pencils that the consumer can purchase with a given amount of money. In this case, the consumer has $20 to spend, and each pen costs $2 while each pencil costs $1. Therefore, the equation that correctly represents the budget constraint is $20 = ($2 × Quantity of pens) + ($1 × Quantity of pencils), as in choice B.

A Consumer Has $20 That He Wants to Spend on Two