Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder

Exercise 13

Oscar consumes two goods, wine and cheese. His weekly income is $500.
a. Describe Oscar's budget constraints under the following conditions:
i. Wine costs $10/bottle, cheese costs $5/pound;
ii. Wine costs $10/bottle, cheese costs $10/pound;
iii. Wine costs $20/bottle, cheese costs $10/pound;
iv. Wine costs $20/bottle, cheese costs $10/pound, but Oscar's income increases to $1,000/week.
b. Describe why budget constraints ii and iii will probably provide less utility than does budget constraint i. Are there any situations where this would not be the case?
c. Describe why budget constraint iv provides precisely the same options to Oscar as does budget constraint i. What income (in euros, €) would Oscar need if he is to afford these same options if wine costs €15 per bottle and cheese costs €7:50 per pound? How about a situation in England where wine costs £4 per bottle and cheese costs £2 per pound? What general conclusions can you draw by comparing all the budget constraints mentioned in this part?