Question

Steve likes grabbing a small pizza on the way home stopping by Redbox to rent a movie. Steve works a part-time job where he makes $30 per week; a small pizza costs $7.50, and a movie rental is $2. Draw Steve’s budget constraint.

Illustrate on your graph the effects on Steve’s budget of each of the following.

(a) Steve finds a coupon for one free pizza. (Do this one on your graph above)

For the remaining two parts, redraw Steve’s original budget and illustrate the changes:

(b) Redbox runs a promotion for a holiday: first five movies are still $2 each, but the sixth and subsequent rentals ore half off.

(c) Steve’s favorite pizza place raises its prices, so a small pizza is now $10.

Answer 1

15 Income (Y) = $30; Price of Pizza (Rp)= $7.50) Movie ince of movie (lm) = $2 CHorizontal intercept - - 30=4) (Vertical intercepta =30='s) - Pizza (0) BC is the new budget constraint where total pizza - ut coupon = utl=5 but movie remains same. Post Cost of Ist five movies -2x5=10 Amount left = Y-10 = 30-10=20 a Pizza bought with $80 = 303267 → Movies bought with $20 = 20 = 20 = 20 Sche p Tastal movies bought "12 212 BC2 has a kink at e (2.67,5) (6) a's ast 15 5 - - Total movies al 1 = m/2 5+20 2/2 = 95 o 2.674 Feet Horizontal intercept : Y - 30 = 3 New Pp To vertical intercept remains same. Scanne Baith BC Can Scanner 3 4