Person A spends all his income ($100) on good X and composite good Y.

  • #1

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Person A spends all his income ($100) on good X and composite good Y. Draw person A's budget constraint if good X sells for $5 each and each time he buys 5X, he receives a coupon redeemable for one unit of good Y.
How would you draw this graph?
 
  • #2
Set up an XY coordinate system. What is the largest possible number of good X he can buy? If he does that, how many Y does he get? Mark that point. Pick another possible value for X. Can he buy that many? How many Y would he get?
 

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