1.

Illustrate how budget line will shift subject to the following changes: (submit 4 graphs from b to
e)
Show Solutions on each number.
a. Draw a budget line (indicate the X and Y intercepts) given that:
Budget = P1,000
Price of X = P200
Price of Y = P250
b. Show the shift in budget line if price of X rises to P400. (show original budget line and the new
budget line)
c. Show the shift in budget line if price of Y rises to P500. (show original budget line and the new
budget line)

d. Show the shift in budget line if price of X lowers to P100. (show original budget line and the new
budget line)

e. Show the shift in budget line if both prices remained at P200 and P250 respectively but income
rises to 1,500. (show original budget line and the new budget line)

2. Answer the following question, given a budget line and an indifference map below.

a. Suppose budget line is L1, what combination of X and Y will the consumer choose? Choose
corresponding letter. Why will the consumer not choose point A or C?

b. Which budget line would be relevant to utility maximization analysis if money income remains
at the original level as L1, the price of X remains the same, and the price of Y increases.
Which combination of X and Y will the consumer choose? Choose corresponding letter.

c. Which budget line would be relevant to utility maximization analysis if money income rises from
original level L1 while the prices of X and Y remain the same.
Which combination of X and Y will the consumer choose? Choose corresponding letter.
d. How will optimum combinations change as budget moves from L1 to L2? L1 to L3? Which
combination contains more units of each good?