Bruno can spend his income on two different goods: Britney
Spears CDs and notebooks for his class notes. He is thinking
about the following three bundles: bundle A contains 5 CDs
and 5 notebooks; bundle B contains 10 CDs and 2 notebooks;
and bundle C contains 3 CDs and 6 notebooks. For each of
the following situations, draw the budget line and decide
which of these bundles are possible consumption bundles.
That is, determine which of these bundles he can consume
given his income and prices. Place CDs on the horizontal axis
and notebooks on the vertical axis.
a. CDs cost $10 each, and notebooks cost $2 each. Bruno
has income of $60.
b. CDs cost $10 each, and notebooks cost $5 each. Bruno
has income of $110
c. Bruno’s income and the prices for CDs and notebooks are
such that he can just buy bundle C (that is, bundle C is
on his budget line). The opportunity cost of 1 CD is 1
notebook.