1. Oscar consumes two goods, wine and cheese. His weekly income is $$ \$ 500 $$. a) Write down Oscar's budget line equations and plot the respective budget lines und 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 increas $$ \$ 1,000 / $$ week. b) What can you conclude by comparing the first and the last of these budget constraints?

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Macdonald Bob · Accepted Answer

Oscar's budget lines are identical in scenarios (i) and (iv) because both his income and the prices of wine and cheese doubled proportionally. This means his purchasing power remains the same, resulting in the same budget line.

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