Suppose a consumer wants to consume two goods which are available only in integer units. The two goods are equally priced at Rs 10 and the consumer’s income is Rs 40.
Write down all the bundles that are available to the consumer.
The bundles available to the consumer are: (0,0), (0,1), (0,2), (0,3), (0,4), (1,0), (1,1), (1,2), (1,3), (2,0), (2,1), (2,2), (3,0), (3,1), (4,0).
Among the bundles that are available to the consumer, identify those which cost her exactly Rs 40.
The bundles that cost exactly Rs 40 are: (0,4), (1,3), (2,2), (3,1), (4,0).
Explanation
This question tests understanding of the budget set concept. The budget constraint is p₁x₁ + p₂x₂ M. Given p₁ = p₂ = Rs 10 and M = Rs 40, the constraint becomes 10x₁ + 10x₂ 40, or x₁ + x₂ 4. Since goods are available only in integer units, we list all non-negative integer combinations satisfying this inequality. For part (ii), bundles on the budget line satisfy equality: 10x₁ + 10x₂ = 40.