Show full answers to a) b) & c) **Transcription for Educational Website:**---Peter has a monthly income of $ I = \$56 $ to spend on two goods, t-shirts (good $ x $) and movies (good $ y $). T-shirts cost $ p_x = \$14 $ and movies cost $ p_y = \$7 $.a) **Write the equation of Peter’s budget line and represent it graphically.** Label this budget line as $ BL_a $. Look at the budget line, if Peter spends all his monthly income on t-shirts, how many t-shirts can he 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 $ p_xx + p_yy = I $. In this general equation, insert the given information about prices and income to find the equation of Peter’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 $ I' = \$42 $. **On the same graph from part (a), draw his new budget line** (label it as $ BL_b $) to show graphically how the location of his original budget line changes. Next, describe in words how his monthly consumption of t-shirts and movies (i.e., set of affordable bundles and maximum quantity of goods he can consume) is affected by this change in income.c) **On a different graph, draw again Peter’s original budget line from part (a).** Suppose his monthly income remains steady at $ I = \$56 $ but movies double in price from $ p_y = \$7 $ to $ p'_y = \$14 $, while the price of t-shirts remains at $ p_x = \$14 $. **Draw his new budget line** (label it as $ BL_c $) 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 by this price change.---**Explanation of Graphs and Diagrams:**- **Graph for Part (a):** Plot the budget line $ BL_a $ on a graph where the x-axis represents the quantity of t-shirts and the y-axis represents the quantity of movies. Calculate the intercept

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's budget line. Next, to solve for y to write the budget line in its slope-intercept form,

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's budget line. Next, to solve for y to write the budget line in its slope-intercept form,

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Show full answers to a) b) & c)

**Transcription for Educational Website:**

---

Peter has a monthly income of $ I = \$56 $ to spend on two goods, t-shirts (good $ x $) and movies (good $ y $). T-shirts cost $ p_x = \$14 $ and movies cost $ p_y = \$7 $.

a) **Write the equation of Peter’s budget line and represent it graphically.** Label this budget line as $ BL_a $. Look at the budget line, if Peter spends all his monthly income on t-shirts, how many t-shirts can he 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 $ p_xx + p_yy = I $. In this general equation, insert the given information about prices and income to find the equation of Peter’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 $ I' = \$42 $. **On the same graph from part (a), draw his new budget line** (label it as $ BL_b $) to show graphically how the location of his original budget line changes. Next, describe in words how his monthly consumption of t-shirts and movies (i.e., set of affordable bundles and maximum quantity of goods he can consume) is affected by this change in income.

c) **On a different graph, draw again Peter’s original budget line from part (a).** Suppose his monthly income remains steady at $ I = \$56 $ but movies double in price from $ p_y = \$7 $ to $ p'_y = \$14 $, while the price of t-shirts remains at $ p_x = \$14 $. **Draw his new budget line** (label it as $ BL_c $) 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 by this price change.

---

**Explanation of Graphs and Diagrams:**

- **Graph for Part (a):** Plot the budget line $ BL_a $ on a graph where the x-axis represents the quantity of t-shirts and the y-axis represents the quantity of movies. Calculate the intercept

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Step 1: Define Budget Line

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Step 2: Draw the budget line as per original data

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Step 3: Draw Budget line as per part (b)

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Step 4: Draw Budget line as per part (c)

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