For Part b) & c) Describe in words how Peter’s monthly consumption of the two goods is affected by this change in income & price Peter has a monthly income of I = $56 to spend on two goods, t-shirts(good x) and movies (good y). T-shirts cost px = $14 and movies cost py = $7.a) Write the equation of Peter's budget line and represent it graphically. Label thisbudget line as BLa. Look at the budget line, if Peter spends all his monthly income on t-shirts, how many t-shirts he can afford? And what is the maximum number of movieshe could attend given his monthly income?[Hint: The general equation of the budget line is given by pxx + pyy = I. In this generalequation, insert the given information about prices and income to find the equation ofPeter's budget line. Next, to solve for y to write the budget line in its slope-intercept form,find the vertical and horizontal intercepts and connect them to plot line]b) Suppose Peter's income drops from I = $56 to l' = $42. On the same graph from part (a),draw his new budget line (label it as BLB) to show graphically how the location of hisoriginal budget line changes. Next, describe in words how his monthly consumption oft-shirts and movies (i.e., set of affordable bundles and maximum quantity of goods he canconsume) is affected by this change in income.c) On a different graph, draw again Peter's original budget line from part (a). Suppose hismonthly income remains steady at I = $56 but movies double in price from py = $7 topy = $14, while the price of t-shirts remains at px = $14. Draw his new budget line(label it as BLC) to show graphically how the location of his original budget line changes.Next, describe in words how his monthly consumption of the two goods is affected bythis price change.

A budget line, also known as a budget constraint or price line, is a graphical representation used…

Peter has a monthly income of I = $56 to spend on two goods, t-shirts (good x) and movies (good y). T-shirts cost px = $14 and movies cost py = $7. a) Write the equation of Peter's budget line and represent it graphically. Label this budget line as BLa. Look at the budget line, if Peter spends all his monthly income on t- shirts, how many t-shirts he can afford? And what is the maximum number of movies he could attend given his monthly income? [Hint: The general equation of the budget line is given by pxx+pyy = I. In this general equation, insert the given information about prices and income to find the equation of

Peter has a monthly income of I = $56 to spend on two goods, t-shirts (good x) and movies (good y). T-shirts cost px = $14 and movies cost py = $7. a) Write the equation of Peter's budget line and represent it graphically. Label this budget line as BLa. Look at the budget line, if Peter spends all his monthly income on t- shirts, how many t-shirts he can afford? And what is the maximum number of movies he could attend given his monthly income? [Hint: The general equation of the budget line is given by pxx+pyy = I. In this general equation, insert the given information about prices and income to find the equation of

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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