Guy has an income (Y)of $50 with which he can purchase DVDs (D)at $10 each and haircuts (H)at $20 each. Which one of the following represents Guy's budget line?
A)Y = 10QD - 20QH
B)50 = QD + QH
C)Y = 50 + QD + QH
D)20Y = QD + 10QH
E)50 = 10QD + 20QH

Question

Quizplus · Accepted Answer

The budget line shows the combinations of DVDs and haircuts that Guy can purchase with his income of $50. Let QD be the quantity of DVDs and QH be the quantity of haircuts. Guy can purchase a maximum of 5 DVDs (5 x $10 = $50) with his entire income or a maximum of 2.5 haircuts (2.5 x $20 = $50) with his entire income. The equation for the budget line is Y = 10QD + 20QH, which simplifies to 50 = 10QD + 20QH. This represents all the possible combinations of DVDs and haircuts that can be purchased at the given prices, and any point on or inside the line is affordable for Guy. Therefore, the best choice is E.

Guy Has an Income (Y)of $50 with Which He Can