1) E = Expenditure on pizza + Expenditure on salad = 2P + 4S
2) E = 2P + 4S
4S = E - 2P
S = (E - 2P)/4
S = 0.25E - 0.5P
Budget | Pizza | Salad |
40 | 0 | S = 0.25(40) - 0.5(0) = 10 |
40 | 10 | S = 0.25(40) - 0.5(10) = 10 - 5 = 5 |
40 | P = E/2 = 40/2 = 20 | 0 |
When income decreases by half then new BL; 2P + 4S = 20
At P = 0, S = 20/4 = 5
At S = 0, P = 20/2 = 10
A change in E causes a shift of the budget constraint.
A change in P causes a change in S.
A change in S causes a change in P.
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