ECON130 IC-BC model Assignment 01
Objective: To demonstrate you can use Excel to plot budget constraints and indifference
curves, and use these to analyse the optimal choice of a consumer.
Due date: 12:00pm (midday), Tue 10 Aug 2021.
Submission: Submit your completed Excel workbook via the link per the Submission
instructions. Do not submit as a PDF, DOCX or other file format.
Instructions: Read the information below first. Then use the Excel file supplied to
complete the questions (see page 3).1
Download a copy of the Assignment Excel file from Blackboard. Name your Excel file
with your Student ID number. E.g. 300123456.xlsx. Do not name it anything else.
Open the Excel file. Write your name (in cell B1) and select your Student ID number from
the dropdown list (cell J1). Your assignment is based on your ID number so check that
you have selected your Student ID number. Contact SEF-Students@vuw.ac.nz without
delay if you cannot find, or have a problem entering, your ID number.
For answers requiring a numeric answer, you should include your calculation (i.e. your
formula) in the relevant cell of the Excel file. This constitutes your working for the
question, and will be marked. If your calculation is incorrect due to a minor error in the
formula - which can be identified from your working - consistency marks may be awarded.
Save and submit your completed assignment via the link on the course Blackboard.
Budget constraint
Suppose c1and c2represent the quantities of two goods that an individual consumes,
p1and p2represent the prices of the two goods, and Mis the consumer’s income.
A consumer’s budget constraint may be stated as: p1c1+p2c2=M.
To plot the budget constraint in (c1,c
2) space, the budget constraint equation needs to be
rearranged so it is in the form c2=F(c1,...).2This equation calculates c2(the variable
on the y-axis) for a given value of c1(the variable on the x-axis), and fixed values of M,p1
and p2. The given value of c1and corresponding value of c2are a pair of (x,y) coordinates
that can be used to plot a specific point on a budget line.
Below, the budget constraint is re-arranged to give an equation for a budget line.
p1c1+p2c2=M(1)
⇒p2c2=M−p1c1(2)
⇒c2=M−p1c1
p2
(3)
Recall that the equation for a straight line may be written as: Y=a+bX ,whereais
the value of the intercept and bis the value of the slope. In the case of the budget line
above, a=M
p2and b=−p1
p2.
1If you do not have a computer that has Excel, you should complete this assignment using a computer
on campus at the University that does. If you attempt to use another programme and there is a problem,
your assignment will be given a mark of zero, and resubmission after the due date will not be permitted.
2I.e. the budget constraint equation is rearranged from the form M=F(c1,c
2,p
1,p
2)tothebudget
line equation in the form c2=F(c1,...).
1
