Quiz 4. Budget2 Ans

Quiz 4. Budget2 Ans - Similarly, the red line shows the...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Shomu Banerjee ECON 201 BUDGET QUIZ #2 ANSWER Draw Joan's budget constraint for pies ( x ) and champagne ( y ) given the following information: her monthly income is $100, p y = $5/bottle, p x is $5/pie if she buys between zero and 10 pies and $4/pie if she buys more than 10 pies. Assume that both goods are divisible. The blue line shows the budget if p y = $5/bottle and p x is $5/pie for all units of x purchased. Since this is true only for x less than or equal to 10, the lower portion of the blue budget line does not apply and is therefore shown with dashes.
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Similarly, the red line shows the budget if p y = $5/bottle and p x is $4/pie for all units of x purchased. Since this is true only for x more 10, the upper portion of the red budget line does not apply and is therefore shown with dashes. Therefore Joans budget is given by the solid blue and red segmentsthere is a jump discontinuity at x = 10 . 20 30 25 15 10 5 20 15 10 Pies Champagne 5...
View Full Document

This note was uploaded on 10/26/2010 for the course ECONOMICS ECON 201 taught by Professor Dr.shomubanerjee during the Summer '07 term at Emory.

Ask a homework question - tutors are online