Suppose a consumer has income of 1000, and buys pizza and coke. The price of pizza is 100 and price of coke is 50. Draw a budget line that represents the set of bundles this individual can afford if they use all their income. (Put movies on the X axis). Label the places where the budget line intercepts each axis and the slope of the line.Suppose that in consumer equilibrium this individual consumes 7 pizza and 6 coke. What rules must hold in consumer equilibrium? Label this bundle in your drawing (call it point “A”). Draw an indifference curve associated with this bundle, and explain how its slope at the equilibrium point relates to the slope of the budget line.Consider the bundle 2 pizza and 8 coke. Label this point. What can you say about the slope of the indifference curve that passes through the point? (For example, is it bigger than, equal to, or smaller than -1?)Now suppose that income goes up to 15oo. Illustrate how the budget constraint will change. If both goods are normal, explain where the new equilibrium will be (your answer might consist of a region of bundles, rather than just one bundle).

Given : Income=1000 Price of Pizza=100 Price of Coke=50

Answered: equilibrium this individual consumes 7…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose a consumer has income of 1000, and buys pizza and coke. The price of pizza is 100 and price of coke is 50.

Draw a budget line that represents the set of bundles this individual can afford if they use all their income. (Put movies on the X axis). Label the places where the budget line intercepts each axis and the slope of the line.
Suppose that in consumer equilibrium this individual consumes 7 pizza and 6 coke. What rules must hold in consumer equilibrium? Label this bundle in your drawing (call it point “A”).
Draw an indifference curve associated with this bundle, and explain how its slope at the equilibrium point relates to the slope of the budget line.
Consider the bundle 2 pizza and 8 coke. Label this point. What can you say about the slope of the indifference curve that passes through the point? (For example, is it bigger than, equal to, or smaller than -1?)
Now suppose that income goes up to 15oo. Illustrate how the budget constraint will change. If both goods are normal, explain where the new equilibrium will be (your answer might consist of a region of bundles, rather than just one bundle).

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