Ollie South has an endowment of 10 guns and 10 pounds of butter.He can buy or sell butter at $1 a pound.But the world market for guns is more complicated: he can buy guns for $5 each, but he can sell guns for only $2.If we graph his budget line with guns on the horizontal axis and butter on the vertical axis, then Ollie's budget line is a straight line
A)joining (12, 0)and (0, 30).
B)joining (14, 0)and (0, 14).
C)with slope - 2/5 through the point (10, 10).
D)with slope - 5/2 going through the point (10, 10).
E)None of the above.

Question

Quizplus · Accepted Answer

The budget line cannot be a straight line because the price at which Ollie can buy guns ($5) is different from the price at which he can sell guns ($2). This creates a kink in the budget line at the point representing his endowment (10 guns, 10 pounds of butter), making none of the provided options correct.

Ollie South Has an Endowment of 10 Guns and 10