Every consumer has a red-money income and a blue-money income and each commodity has a red price and a blue price.You can buy a good by paying for it either with blue money at the blue price or with red money at the red price.Harold has 18 units of red money and 36 units of blue money to spend.The red price of ambrosia is 2 and the blue price of ambrosia is 6.The red price of bubble gum is 1 and the blue price of bubble gum is 2.If ambrosia is on the horizontal axis, and bubble gum on the vertical axis, then Harold's budget set is bounded by
A)two line segments one running from (0, 36)to (6, 18)and the other running from (6, 18)to (15, 0).
B)two line segments, one running from (0, 36)to (9, 18)and another running from (9, 18)to (15, 0).
C)two line segments, one running from (0, 24)to (9, 18)and the other running from (9, 18)to (27, 0).
D)a vertical line segment and a horizontal line segment, intersecting at (9, 18).
E)a vertical line segment and a horizontal line segment, intersecting at (6, 18).

Question

Quizplus · Accepted Answer

To find Harold's budget set, we need to plot the points where he exhausts all his blue money and all his red money separately.

For ambrosia, when he exhausts his blue money (36 units), he can buy 6 units of ambrosia at the blue price (6 units x 6 = 36), which means the point (6,0) is on his budget set. When he exhausts his red money (18 units), he can buy 9 units of ambrosia at the red price (9 units x 2 = 18), which means the point (9,0) is on his budget set.

For bubble gum, when he exhausts his blue money (36 units), he can buy 18 units of bubble gum at the blue price (18 units x 2 = 36), which means the point (0,18) is on his budget set. When he exhausts his red money (18 units), he can buy 18 units of bubble gum at the red price (18 units x 1 = 18), which means the point (0,18) is also on his budget set.

Therefore, Harold's budget set is a polygon bounded by (0, 36), (9, 18), and (15, 0) on the horizontal axis, and (0, 36), (0, 18), and (9, 18) on the vertical axis. The best choice(s) from the given answer choices is B, as it accurately describes this polygon as two line segments running from (0, 36) to (9, 18) and from (9, 18) to (15, 0).

Every Consumer Has a Red-Money Income and a Blue-Money Income