Question 3 a. Andre has a salary of $1000. He spends his entire budget on shoes and beers. The cost for a pair of shoes is $15 and the cost for can of beer is $25. i. Construct Andre’s budget constraint (place) beers on the y-axis. ii. Suppose Andre’s salary rises by 25%. Also suppose that the price of shoes and beers each rise by 40%. Construct Andre’s new budget constraint. What is the difference between the new and old budget constraints? iii. Suppose that the price of beers fell from $25 per beer to $15. Construct Andre’s new budget constraint. What is the difference between the new and old budget constraints. b. Explain the relationship between the budget constraint and indifference curve at consumer optimum.
Question 3
a. Andre has a salary of $1000. He spends his entire budget on shoes and beers. The cost for a pair of shoes is $15 and the cost for can of beer is $25.
i. Construct Andre’s budget constraint (place) beers on the y-axis.
ii. Suppose Andre’s salary rises by 25%. Also suppose that the price of shoes and beers each rise by 40%. Construct Andre’s new budget
constraint. What is the difference between the new and old budget
constraints?
iii. Suppose that the price of beers fell from $25 per beer to $15. Construct
Andre’s new budget constraint. What is the difference between the new
and old budget constraints.
b. Explain the relationship between the budget constraint and indifference curve
at consumer optimum.
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