igure: Budget Lines for Tea and Seones Chart B Chart A Tea ea 50 50 40- 30 20 10
ID: 1119508 • Letter: I
Question
igure: Budget Lines for Tea and Seones Chart B Chart A Tea ea 50 50 40- 30 20 10 10 25 30 Scones 0 5 10 15 3005 15 Chart C Chart D Ted 50 Toa 50 40 - 30- 30 20 15 20 25 30 0 10 15 20 25 30 Scones 5. (Figure: Budget Lines for Ten and Scones) Look at the figure Budget Lines for Tea and Scones. For months now, Agnes has had $20 per month to spend on tea and scones. The price of each cup of tea ahd each scone has been $1. Which of the charts shows what will happen to her budget line if the price of a cup of tea falls to S0.50? A) A B) B C) C D) D 6. Faruq spends all of his income on tacos and milkshakes. His income is $100, the price of tacos is $10, and the price of milkshakes is S2. Put tacos on the horizontal axis and milkshakes on the vertical axis. If Faruq spends all of his income, the opportunity cost of one taco equalsmilkshakes. A) 2 B) 10 C) 5 D) 1/5Explanation / Answer
5. The situation given is depicted by Graph D. As the price of tea falls , its demand will increase without any change in the demand for scones as we do not know weather these are substitutes or complement goods. Thus, with fall in price from 1$ to 0.5 $ , the budget line tilts upwards towards tea as showm in graph D.
6. The opportunity cost of tacos over milkshakes is -
Price of milkshakes/ Price of tacos
= 2/10
= 1/5
Thus, answer is D
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