Ravi has £21 to spend on pastries and biscuits. If he spends all the money on pastries, he can afford 15 pastries. The slope of Ravi's budget line (assuming his pastries consumption is measured on the horizontal axis and his biscuits consumption is measured on the vertical axis) is -3.5 (3.5 in absolute terms). a) Calculate the price of a pastry and the price of a biscuit. Write down Ravi's budget equation and draw the corresponding budget line. Mark the consumption bundle
Ravi has £21 to spend on pastries and biscuits. If he spends all the money on pastries, he can afford 15 pastries. The slope of Ravi's budget line (assuming his pastries consumption is measured on the horizontal axis and his biscuits consumption is measured on the vertical axis) is -3.5 (3.5 in absolute terms). a) Calculate the price of a pastry and the price of a biscuit. Write down Ravi's budget equation and draw the corresponding budget line. Mark the consumption bundle
Microeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter7: Consumer Choice And Elasticity
Section: Chapter Questions
Problem 4CQ
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Transcribed Image Text:EXERCISE 2
Ravi has £21 to spend on pastries and biscuits. If he spends all the money on pastries, he
can afford 15 pastries. The slope of Ravi's budget line (assuming his pastries consumption
is measured on the horizontal axis and his biscuits consumption is measured on the
vertical axis) is -3.5 (3.5 in absolute terms).
a) Calculate the price of a pastry and the price of a biscuit. Write down Ravi's budget
equation and draw the corresponding budget line. Mark the consumption bundle
mentioned above. In your graph, clearly label the axes, the budget line, and
calculate the coordinates of the points of intersection of the budget line with each
axis. Interpret each of those points.
b) Discuss how Ravi's budget set would change if his budget doubles. Show the
relevant changes graphically. How could the price of a pastry increase so that Ravi
could still afford to buy 15 pastries?
c) Discuss how Ravi's budget constraint would change if the government imposed a
tax of £0.50 per pastry and £0.50 per biscuit.
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