Exercise 1 Peter has an income of 1 = $150, which he dedicates to purchasing soda (good x) and pizza (good y). The price of soda is $1 per can, while that of pizza is $2 per slice. a) Write the equation of his budget line and represent it graphically. b) Consider that the university that Peter attends subsidizes pizza, decreasing its price by $1. On the same graph than (a) plot Peter's new budget line. c) What if, additionally to subsidizing pizza, the university gives Peter 25 vouchers that he can use to eat 25 slices of pizza? On a separate graph, show the effect of the free pizza vouchers on his budget line to show the maximum slices of pizza he can consume.

Exercise 1 Peter has an income of 1 = $150, which he dedicates to purchasing soda (good x) and pizza (good y). The price of soda is $1 per can, while that of pizza is $2 per slice. a) Write the equation of his budget line and represent it graphically. b) Consider that the university that Peter attends subsidizes pizza, decreasing its price by $1. On the same graph than (a) plot Peter's new budget line. c) What if, additionally to subsidizing pizza, the university gives Peter 25 vouchers that he can use to eat 25 slices of pizza? On a separate graph, show the effect of the free pizza vouchers on his budget line to show the maximum slices of pizza he can consume.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Exercise 1
Peter has an income of I = $150, which he dedicates to purchasing soda
(good x) and pizza (good y). The price of soda is $1 per can, while that of pizza is $2 per slice.
a) Write the equation of his budget line and represent it graphically.
b) Consider that the university that Peter attends subsidizes pizza, decreasing its price by
$1. On the same graph than (a) plot Peter's new budget line.
c) What if, additionally to subsidizing pizza, the university gives Peter 25 vouchers that he
can use to eat 25 slices of pizza? On a separate graph, show the effect of the free pizza
vouchers on his budget line to show the maximum slices of pizza he can consume.

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Step 2: a. Write an equation of Peter's Budget Line and represent it graphically

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Step 3: b. Peter's new Budget Line after subsidizing the price of pizza

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Step 4: Graph the effect of free pizza vouchers on Peter's Budget Line

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