Your budget constraint for the two goods A and B is 12A + 4B = I, where I is your income. You are currently consuming more than 27 units of B. In order to get 3 more units of A, how many units of B would you have to give up?
A) 0.33
B) 0.11
C) 3
D) 9
E) None of the above.

Question

Quizplus · Accepted Answer

12A + 4B = I is the budget constraint.

Let's assume that initially you consume A1 units of A and B1 units of B.

So, 12A1 + 4B1 = I.

Now, you want to consume 3 more units of A. So, your new consumption bundle becomes A1+3 and B2.

We need to find the value of B2.

The budget constraint equation remains the same. So, we can write:

12(A1+3) + 4B2 = I.

Simplifying it, we get:

12A1 + 36 + 4B2 = I.

12A1 + 4B1 = I. (Initial consumption bundle)

Therefore, by subtracting these two equations, we get:

4B2 - 4B1 = 36

==> B2 - B1 = 9 (Dividing both sides by 4)

So, if you want to consume 3 more units of A, you have to give up 9 units of B.

Therefore, the answer is D.

Your Budget Constraint for the Two Goods a and B