Question

Eric is buying and and pura for a company lunch. Suppose that a bowl of salad costs $5.00, and a slice of pic ts $2.00.

Let E be the amount in dollars that Eric spends on salad and pizza. If Eric buys S bowls of salad and P slices of pizza, then the total amount of money he spends ( E ) can be represented by the equation _______ .

Answer 1

If price of a bowl of salad is $5 and he purchases S bowls, expenditure on salad = 5S. Similarly, if price of a slice of pizza is $2 and he purchases P slices, spending on pizza = 2P. If E is the total expenditure he makes to purchase salad and pizza, the total amount of money € can be represented by the equation

E = 55 +2P

To arrange the above equation to represent P in terms of E and S, we can rewrite the above equation as
2P = E -55
                .

Now suppose E=$40. Using the above equation, we can complete the following table as follows:

Budget	Salad (Bowls)	Pizza (Slices)	Comments
40	0	20	If $40 is spend only on pizza, he can buy $40/$2 = 20 slices of pizza.
40	4	10	4 bowls of salad costs $5x4 = $20. Remaining $40-$20=$20 will be used to purchase pizza. Hence, the slices of pizza which can be bought by $20 = $20/2=10 405 P = - _20_10 = 10 4 = 20 - 10 = 10
40	8	0	If $40 is spend only on salad, he can buy $40/$5 = 8 slices of pizza. 55 + 2x0 = 40 => 5 = 40 = 8

The budget constraint with E=$40 can be shown by the black line in the following plot, where, the line touches the Salad (bowls) axis at 8 and the pizza (slice) axis at 20.

Now if Eric’s income increases by 50%, i.e., new income = $40*(1+0.5) = $60, he would be able to buy 30 slices of pizza when he buys no salad. Similarly, he can buy 12 bowls of salad when he buys no pizza. Hence, the new budget line will touch the salad axis at 12 and pizza axis at 30, as shown by the blue line in the diagram below.

オーピーシーシーイーピーシーピー Pizza (Slices) 02468_10 12 14 Salad (Bowls)

Therefore, the following statement best summarizes the pattern of causality captured by the graph.

A change in E causes a shift of the budget constraint.