A consumer has an annual budget constraint for two goods: “housing sq. ft." and "$ for everything else". Draw the budget constraint for this consumer if income (v) = $50,000 and price per sq. ft. of housing, ph, is S200. Please be sure to fully label your graph (i.e., slope, intercept, etc.). Note: plot "housing sq. ft." on the x-axis. How would this consumer's budget line change if she received a $5,000 raise and the price of housing increased to $250? Include a graph with your answer. How did the economic rate of substitution (ERS) between housing and $ for everything else change when ph changed? Please interpret the ERS both before and after the price change.

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
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Chapter1: Making Economics Decisions
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A consumer has an annual budget constraint for two goods: "housing sq. ft." and "$ for everything else".

- Draw the budget constraint for this consumer if income (y) = $50,000 and price per sq. ft. of housing, pᵢ, is $200. Please be sure to fully label your graph (i.e., slope, intercept, etc.).

  **Note:** Plot "housing sq. ft." on the x-axis.
  
- How would this consumer’s budget line change if she received a $5,000 raise and the price of housing increased to $250? Include a graph with your answer.

- How did the economic rate of substitution (ERS) between housing and $ for everything else change when pᵢ changed? Please interpret the ERS both *before* and *after* the price change.
Transcribed Image Text:A consumer has an annual budget constraint for two goods: "housing sq. ft." and "$ for everything else". - Draw the budget constraint for this consumer if income (y) = $50,000 and price per sq. ft. of housing, pᵢ, is $200. Please be sure to fully label your graph (i.e., slope, intercept, etc.). **Note:** Plot "housing sq. ft." on the x-axis. - How would this consumer’s budget line change if she received a $5,000 raise and the price of housing increased to $250? Include a graph with your answer. - How did the economic rate of substitution (ERS) between housing and $ for everything else change when pᵢ changed? Please interpret the ERS both *before* and *after* the price change.
Expert Solution
Step 1

Given information

Income=50000

Price of housing per square feet=200

Let's take Price of the other things =1

 

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