Adam has a monthly income of $20 that can be spent on books (B)and pencils (P).The price of a book is $5 and the price of a pencil is $0.50.Which bundle of books and pencils lies ON Adam's budget line?
A) 3 books and 5 pencils
B) 1 book and 40 pencils
C) 2 books and 20 pencils
D) no book and 20 pencils

Question

Quizplus · Accepted Answer

We can represent Adam's budget line by the equation 5B + 0.5P = 20, where B is the number of books and P is the number of pencils. Rearranging this equation, we get P = 40 - 10B, which tells us that the maximum number of pencils Adam can buy depends on the number of books he buys. 
To find the bundle that lies on Adam's budget line, we need to plug in different values of B and solve for P. The table below summarizes our calculations:

| Number of Books (B) | Number of Pencils (P) | Total Cost | 
|---------------------|-----------------------|--------------| 
| 0 | 40 | $20 | 
| 1 | 30 | $17.50 | 
| 2 | 20 | $15 | 
| 3 | 10 | $12.50 | 
| 4 | 0 | $10 |

As we can see, the only bundle that has a total cost of $20 and lies on Adam's budget line is 2 books and 20 pencils. Therefore, the best choice is Choice C.

Adam Has a Monthly Income of $20 That Can Be