Ben allocates his lunch budget between two goods, pizza and burritos. The figure to the right illustrates Ben's original budget line. Suppose that pizza is taxed, causing the price to increase (by 20 percent, for example). Then suppose instead that pizza is rationed at a quantity less than Ben's desired quantity. Show how these changes affect Ben's optimal bundle using an indifference map. 1.) Using the three-point curved line drawing tool, draw an indifference curve. Label this curve U 2.) Using the point drawing tool, show an equilibrium consumption bundle that illustrates Ben maximizing satisfaction before the pizza tax. Label this point e 3.) Using the line drawing tool, graph Ben's new budget line with the pizza tax. Label this line LT 4.) Using the three-point curved line drawing tool, add a new indifference curve. Label this curve U 5.) Using the point drawing tool, show an equillibrium consumption bundle that illustrates Ben maximizing satisfaction with the tax on pizza. Label this point e L. Burritos 6.) Using the point drawing tool, show Ben's satisfaction-maximizing bundle when pizzas are rationed at some quantity that is less than Ben's desired quantity of pizza. (Assume there is no pizza tax) Label this point ep Carefully follow the instructions above, and only draw the required objects Pizza
Ben allocates his lunch budget between two goods, pizza and burritos. The figure to the right illustrates Ben's original budget line. Suppose that pizza is taxed, causing the price to increase (by 20 percent, for example). Then suppose instead that pizza is rationed at a quantity less than Ben's desired quantity. Show how these changes affect Ben's optimal bundle using an indifference map. 1.) Using the three-point curved line drawing tool, draw an indifference curve. Label this curve U 2.) Using the point drawing tool, show an equilibrium consumption bundle that illustrates Ben maximizing satisfaction before the pizza tax. Label this point e 3.) Using the line drawing tool, graph Ben's new budget line with the pizza tax. Label this line LT 4.) Using the three-point curved line drawing tool, add a new indifference curve. Label this curve U 5.) Using the point drawing tool, show an equillibrium consumption bundle that illustrates Ben maximizing satisfaction with the tax on pizza. Label this point e L. Burritos 6.) Using the point drawing tool, show Ben's satisfaction-maximizing bundle when pizzas are rationed at some quantity that is less than Ben's desired quantity of pizza. (Assume there is no pizza tax) Label this point ep Carefully follow the instructions above, and only draw the required objects Pizza
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Transcribed Image Text:Ben allocates his lunch budget between two goods, pizza and burritos. The figure to the right illustrates Ben's original
budget line.
Suppose that pizza is taxed, causing the price to increase (by 20 percent, for example). Then suppose instead that pizza is
rationed at a quantity less than Ben's desired quantity. Show how these changes affect Ben's optimal bundle using an
indifference map.
1.) Using the three-point curved line drawing tool, draw an indifference curve. Label this curve U
2.) Using the point drawing tool, show an equilibrium consumption bundle that illustrates Ben maximizing satisfaction
before the pizza tax. Label this point e
3.) Using the line drawing tool, graph Ben's new budget line with the pizza tax. Label this line LT
4.) Using the three-point curved line drawing tool, add a new indifference curve. Label this curve U
5.) Using the point drawing tool, show an equillibrium consumption bundle that illustrates Ben maximizing satisfaction
with the tax on pizza. Label this point e
L.
Burritos
6.) Using the point drawing tool, show Ben's satisfaction-maximizing bundle when pizzas are rationed at some quantity
that is less than Ben's desired quantity of pizza. (Assume there is no pizza tax) Label this point ep
Carefully follow the instructions above, and only draw the required objects
Pizza
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