Question

You are waiting to board at an airport for a trip to Korea. You decided to buy cigarettes and Swiss chocolates for your friends at a shop in the airport. You have $30 only. A price for one pack of cigarettes is $2 and a price for one bar of Swiss chocolates is $3. You also learned from a traveller's book that you can only bring 10 packs of cigarettes into the country at the maximum and are not allowed to buy more than that ("cigarettes rationing").

1.Write down the budget set and budget line in equations for the case without regulation on cigarettes amount.

2. Draw a budget line for each of two cases in a same graph: without the regulation on cigarettes amount and with the regulation in place. Put Swiss chocolates on the y axis and cigarettes on the x axis. Label x and y intercepts.

3.Suppose the price of a bar of Swiss chocolates increases to $4 due to an increase in cocoa powder. Draw a new budget line with the cigarettes rationing under the new price in the same graph.

4.Can you afford an bundle (cigarettes = 7 packs, chocolates = 5 bars) under the old price of chocolates (i.e. p2=3 )? How about under the new price of chocolates (i.e. p2=4 )?

Answer 1