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Quiz 4. Budget2 Ans

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

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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.
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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 Joan’s budget is given by the solid blue and red segments—there is a jump discontinuity at x = 10 . 20 30 25 15 10 5 20 15 10 Pies Champagne 5...
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