Suppose the only two goods in the world are peanut butter and jelly.
A:
You have no exogenous income but you do own 6 jars of peanut butter and 2 jars of jelly. The price of peanut butter is $4 per jar, and the price of jelly is $6 per jar.
(a) On a graph with jars of peanut butter on the horizontal and jars of jelly on the vertical axis, illustrate your budget constraint.
(b) How does your constraint change when the price of peanut butter increases to $6? How does this change your opportunity cost of jelly?
B:
Consider the same economic circumstances described in 2.2A and use x1 to represent jars of peanut butter and x2 to represent jars of jelly.
(a)Write down the equation representing the budget line and relate key components to your graph from 2.2 A(a).
b) Change your equation for your budget line to reflect the change in economic circumstances described in 2.2A(b) and show how this new equation relates to your graph in 2.2A(b).