Question

Bus ride is $0.05, Gas is $0.10/gallon

5.) It is 1944. Bus fare is a nickel; gasoline is a dime (per gallon). I have $4/week to spend on bus fare and gasoline. a) Sketch my budget set for bus rides and gasoline. b) Oops; I forgot to tell you that gasoline is rationed: no one is allowed to buy more than 20 gallons/week. On the same sketch, show my budget set, taking rationing into account. c) I find a black market source of gasoline - at $1/gallon. On the same sketch show my budget set for bus fare and gasoline. [Keep in mind that I can still buy 20 gallons/week at a dime per gallon before I go to the black market. It may help to use different colors. Label clearly!

Answer 1

Bus ride & 0.0s and Gas is $0.10/gall on Suppose quantity of bus fare is denoted by 'x' and quantity of gasoline is denoted by 'y Il now, suppose bus ride face px = $0.05 and pn gallone price is Py = $0.110 DR a. Hi Also, total income M= $4/week Now, budget set for bus rides and gasoline will be me x Pxt ypy v 4 = 0.05 X + oiloyati Now, it o spud entire in come on bus ride then we will get the horizontal intncept of budget set [ assming bus ride (X) on the horizontal anis and gasoline (Y) on the untical anes] - 4 = 0.05st 0.1010) [as y=0] => x=80 bus ride / week I Similarly, it e Spund entire in come on gasoline and I no bus rides them to by substituting y=0, in the I budget constraint, we will get the vatical in tucebt of the budget Set . Hunce, 4= 0.05 (0) +0110 y sallad - y = 40 gallon week canner

Now by joining horizontal and vatical istucept, P CamScanner grazu my budget Set (AB) ilglican with 9 na

b As I can't buy more than 20 gallows week here y= 20 gallons week and, bus rides remain un changed at 80 bus rides. Auce new budget line will be BAI 0 10 20 30 40 so cs Scanned with CamScanner

a INow, as the black market Price of gasolin Li &1 / gallon. I can buy 20 gallon ade La price of $0.10 / gallon which costs 2 0X010) - $ 21. and with remaining $(4-2) =$2 I can buy 2 gallon of gasoline in the Iblach market tice & rear buy to tal.. 1. (20+2) = 22 gallons of gasoline I Now, it I spend my entire income on busrides then I can buy X PX TWO.OS 2D Toni =80 bus rides Hunce the budget line will be BAIL Ics Scanded with anne News On l ine