Question

2. John has a $500 monthly budget for meals (M) and books (B). The price of meal is $10, and the price of a book is $100. Use a separate graph for each part below and plot meals on the horizontal axis and books on the vertical axis. Label all axes, intercepts and possible kink points, and treat each case separately. a. Draw John's budget constraint for meals and books. (5 points) b. Draw John's budget constraint if now his favorite (and only) restaurant raises the price of a meal to S12 after 25 meals, and again to $15 after 40 meals. (Yes, this is weird but let's run with it!) (10 points) Draw John's budget constraint if now he receives $150 in meal subsidies and $200 in book subsidies from his University. Meal subsidies can only be spent on meals, and book subsidies can only be spent on books. (10 points) c.

Answer 1

a) Since Samantha gets to pay $8 after 25 meals, her new budget line would tilt outwards after she has consumed 25 meals. So her new budget line would afford her 5 books or 51.25 meals.

b) Since for every two books she purchases, she gets the next one for half the price, this she can afford 6 books in total. Samantha's new budget line is shifted outwards. (dotted line)

c) After every two books, if the book store offers Samatha $10 back, she can afford a total of 5.2 books.

d) By spending meal subsidy on meals and book subsidy on books, Samantha'

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