There are two goods that are priced at Rs 5 each and are available only in integral units. If a consumer has Rs 20, then the bundle that this consumer can afford to buy is:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (1, 3)
Let the two goods be Good A and Good B.
Price of each good = Rs 5
Consumer’s income = Rs 20
The budget constraint is:
5x+5y≤20⇒x+y≤4
(where x and y are the quantities of the two goods, in integral units)
Now let's check each option:
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(3, 3) → 3 + 3 = 6 → exceeds the limit of 4
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(4, 5) → 4 + 5 = 9 → too expensive
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(1, 3) → 1 + 3 = 4 → total cost = 5×1 + 5×3 = Rs 20
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(5, 4) → 5 + 4 = 9 → too expensive