Sam has income of $2000 per month, and consumes two goods, housing and food. Apartments in her area cost $2 per square foot per month, while food costs $10 per meal. Sam receives news that rents are rising to $4 per square foot per month. a. Sketch Sam’s budget constraint before and after the price change. b. Sam’s utility is U=H1/2F1/2, where H is the square feet of housing she consumes and F is the number of meals she consumes. i. How large an apartment did Sam live in before the price change? How many meals did she consume? Show how you solved the problem. ii. How large an apartment will Sam move to now that rents are rising? How many meals will she consume? Show how you solved the problem c. In response to widespread hunger in Sam’s area, the government issues food debit cards to all residents, which automatically reload with $100 per month that can only be spent on food. Draw the change in Sam’s budget constraint (use the one where apartments cost $4 per square foot per month).
Sam has income of $2000 per month, and consumes two goods, housing and food. Apartments in her area cost $2 per square foot per month, while food costs $10 per meal. Sam receives news that rents are rising to $4 per square foot per month. a. Sketch Sam’s budget constraint before and after the
A budget line, also known as a budget constraint, is a graphical representation of the limits or boundaries that restrict an individual or a household's consumption choices due to their income and the prices of goods or services. It is a fundamental concept in economics and personal finance.
Step by step
Solved in 4 steps with 5 images
