(a)
Draw the budget constraint when income = $4,000; PX = $50; PY = $100.
(a)
Explanation of Solution
Since the income is $4,000 and
Thus, the consumer will consume 80X.
Since the income is $4,000 and price of good Y is $100, the quantity of good Y can be calculated as follows:
Thus, the consumer will consume 40Y.
Now, the budget constraint can be represented as follows:
In Figure 1, the vertical axis measures the quantity of good Y and the horizontal axis measures the quantity of good X.
(b)
Draw the budget constraint when income = $3,000; PX = $25; PY = $200.
(b)
Explanation of Solution
Since the income is $3,000 and price of good X is $25, the quantity of good X can be calculated as follows:
Thus, the consumer will consume 120X.
Since the income is $3,000 and price of good Y is $200, the quantity of good Y can be calculated as follows:
Thus, the consumer will consume 15Y.
Now, the budget constraint can be represented as follows:
In Figure 2, the vertical axis measures the quantity of good Y and the horizontal axis measures the quantity of good X.
(c)
Draw the budget constraint when income = $2,000; PX = $40; PY = $150.
(c)
Explanation of Solution
Since the income is $2,000 and price of good X is $40, the quantity of good X can be calculated as follows:
Thus, the consumer will consume 50X.
Since the income is $2,000 and price of good Y is $150, the quantity of good Y can be calculated as follows:
Thus, the consumer will consume 13.33Y.
Now, the budget constraint can be represented as follows:
In Figure 3, the vertical axis measures the quantity of good Y and the horizontal axis measures the quantity of good X.
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Chapter E Solutions
Economics (MindTap Course List)
- Explain how changes in income (budget constraint) and prices affect consumer consumption choices. Think back to a purchase that you made recently. How did you evaluate whether or not you would be purchasing the item?arrow_forwardNow suppose Henry has $900 to spend rather than $450. How will this change affect Henry's budget line? Group of answer choices A.It shifts outward in a parallel fashion. B.It pivots, moving leftward along the horizontal axis and outward along the vertical axis. C.It shifts inward in a parallel fashion D.It does not move.arrow_forwardAs described in Exercise 8.1, Lucy wants carpets and paintings for here office. Her company has given her a budget of $7200 for this purpose. Persian carpets of the size that she wants can be purchased for $900 each and paintings from a local Native American artist cost $400 each. Using Excel's charting tool, draw Lucy's budget constraint if her budget is $5000. Use 0, 1, 2, 3, and 5 carpets as possible quantities. Put carpets on the horizontal axis and paintings on the vertical axis.arrow_forward
- 34) Consider Dianna who has a $25 fast food budget per month. She can purchase salads (S), hamburgers (H), or chicken strips (C). The price of a salad is Ps=$3, the price of a hamburger is PB-$2 and the price of chicken strips is Pc $4. Fill in the table below. You will use your solutions to answer questions 34-36. # Hamburgers # Salads 1 2 2 MU Salads 36 30 c) 4; 3; 4 d) 5; 4; 5 MU/P Salads 1 2 3 4 5 MU hamburgers 5 In the optimal consumption bundle for Dianna, she will purchase chicken strips. a) 2; 1; 2 b) 3; 2; 3 28 22 16 36) Dianna total utility from her consumption bundle is a) 126 b) 504 c) 106 d) 398 MU/P # Hamburgers Chicken Strips T 2 3 7 salads, 4 5 35) Dianna's utility is maximized where the marginal utility per dollar spent on each item is equal to a) $10 b) $12 c) $14 d) $16 MU Chicken Strips 72 64 56 48 40 hamburgers, and MU/P Chicken Stripsarrow_forwardDan spends his money on baseball games and concert tickets. Baseball tickets cost $15, and concert tickets cost $25. His entertainment budget is $150. Dan's best friend Jay tells Dan that his favorite thing to do is go to concerts. In fact, going to concerts is popular with a lot of Dan's friends. Which statement below is likely to be correct? (A) Dan's budget constraint will shift up and the quantity of concerts he attends will likely increase. B Dan's budget constraint will stay the same and the quantity of concerts he attends will likely increase. D Dan's budget constraint will shift down and the quantity of concerts he attends will likely decrease. Dan's budget constraint will stay the same and the quantity of concerts he attends will likely decrease.arrow_forwardUse the following information to answer questions 1 through 8: A student has a monthly budget of $120 to spend on either burritos, which cost $6 each, or sodas, which cost $4 each. What is the largest number of burritos that the student could afford to purchase in one month? What is the largest number of sodas the student could afford to purchase in one month?arrow_forward
- consider your decision about how many hours to work. draw your budget constraint assuming that you pay no taxes on your income. on the same diagram, draw another budget constraint assuming that you pay 15 percent tax. show how the tax might lead to more hours of work,fewer hours or the same number of hours.explain.arrow_forwardTrue or false. A budget constraint, budget line or budget set is a graphical way to illustrate all possible combinations of two goods that a person can afford.arrow_forwardWith diminishing marginal utility, how do consumers decide how much to consume? Students are expected to give a detailed answer to this question. You must include an explanation about what diminishing marginal utility means in your answer. Concepts such as "budget constraint", "more is better", "utility". "marginal utility", and "marginal utility per dollar spent" must be used in your answer. No graph or calculation is required in this question.arrow_forward
- Kimiko is planning a party to celebrate her birthday. She has decided to serve sushi and yakitori meat skewers. Each serving of sushi is $8 and each yakitori skewer is $2. Kimiko has $240 to spend on the party. Please graph her budget line. Her friend, Barry, thinks there will not be enough food, so he gives Kimiko $80 more to spend on the party (she now has $320). How will this affect the budget line? a. There will be a parallel shift of the budget line away from the origin. b. There will be a parallel shift of the budget line towards the origin. c. There will be an outward shift of point A only. d. There will be an outward shift of point B only.arrow_forwardIf a consumer's income decreases, what will happen to the budget line? It will shift outward. It will become steeper. It will become flatter. It will shift inward.arrow_forward11)Which of the following describes what happens to a consumer's budget line if that consumer's budget increases? The budget line. A) becomes steeper. B) shifts farther away from the origin of the graph. C) does not change. D) becomes more horizontal. E) shifts closer to the origin of the grapharrow_forward
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning