Question

George has a weekly income (I) of $50, which he uses to purchase doughnuts (D) and coffee (C). If the price of a doughnut is $1 and the price of coffee is $2.50, which of the following consumption bundles lies BEYOND George's budget constraint?
a. 10C and 25D
b. 15C and 15D
c. 5C and 10D
d. 5C and 5D

Answer 1

Answer:

b. 15 C and 15 D

Explanation:

Given:

George has a weekly income (I) = $50,

Price of a doughnut = $1

Price of coffee = $2.50

Question asked:

Which of the following consumption bundles lies BEYOND George's budget constraint?

Solution:

By multiplying number of pieces of each item to its respective prices,we get

a. 10C and 25D  = 10 $\times$ 2.5 + 25$\times$1  (unitary method)

                          = 25 + 25 = 50

b. 15C and 15D  = 15 $\times$2.5 + 15 $\times$1

                         = 37.5 + 15 = 52.5

c. 5C and 10D  = 5$\times$2.5 + 10 $\times$1

                       = 12.5 + 10 = 22.5

d. 5C and 5D = 5 $\times$2.5 + 5 $\times$1

                      = 12.5 + 5 = 17.5

Hence, option  (b)  15 pieces of Coffee and 15 pieces of Doughnut lies beyond George's budget constraint.