Question

Number Spending Total Pints Spending on Pepsi of Pepsi of Pizzas Spending on Pizza $ 0 100 $1,000 $1,000 100 900 90 50 1,000 100 008 700 1,000 80 200 150 1,000 1,000 300 70 600 60 200 400 250 500 50 500 1,000 400 300 600 1,000 1,000 40 350 700 30 300 200 400 20 800 1,000 100 1,000 1,000 450 900 10 500 0 1,000

a) Draw the budget constraint for a person with income of $1,000 if the price of Pepsi is $5 and the price of pizza is $10.

b) Choose any combination of pizzas and from the table and write a proper budget equation with Pizza denoted as good x and Pepsi denoted as good Y?

c) What is the slope of the budget constraint?

d) If the person wants to spend equal amount of money on both pizza and Pepsi what combination of quantity of both goods needs to be purchased to satisfy the budget constraint? Write the budget equation in this case?

e) What happens to the budget equation and budget set if the income of the person decreases to $500?

f) What happens to the budget equation and budget set if the price of pizza decreases to $5 keeping the price of Pepsi and the income same?

Answer 1

a) Income = $1000 Price of Pepsi (P = 45 Price of pizza (Pty) = $10 Budget constraint = XoPx + yopy & 5.X + 104 Income = 1ooo 6.) Let's say , - no. of no. of Equation pizza = 70 pepsi = 60 = Gol 60(8) + 70 (10) = 1000, then Budget c) slope of Budget cone sont = Paper d.) spending no. of on units pizza = 500. of pizza = soo - 50 epending on pepsi = soo no. of write of pepsi = 500 = 100 S From Budget Equation = 100 (5) + 50 (100) = 100.