Ch11Figures - Ch 11 Figures Figure 11.1 Your Budget Line...

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Ch 11 Figures Figure 11.1 Your Budget Line The bundles listed in the table are all exactly affordable with your weekly income of $72 and market prices of $3 per gallon of gasoline and $2 per slice of pizza. These bundles are graphed to show your budget line. All of the bundles on the budget line spend exactly all of your income. If you want to buy more pizza, you must buy less gas. Specifically, buying 4 fewer gallons of gas frees up $12 that can purchase 6 additional slices of pizza. This is illustrated by comparing the bundle of 16 gallons of gas and 12 slices of pizza to the bundle of 12 gallons of gas and 18 slices of pizza. The budget constraint includes all of the bundles on the budget line and inside the budget line. 0 6 12 18 24 30 36 0 4 8 1 21 62 02 4 Quantity of Gasoline Quantity of Pizza …if you buy 4 fewer gallons of gasoline you can buy 6 more slices of pizza … Gallons of Gasoline Slices of Pizza 03 6 43 0 82 4 12 18 16 12 20 6 24 0
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Ch 11 Figures Figure 11.2 Your Optimal Choice The graph focuses on selected bundles on your budget line when your weekly income is $72, the price of a gallon of gasoline is $3, and the price of a slice of pizza is $2. The bundles are labeled with your utility from the consumption of the bundle. The highest utility on your budget line is 150 utils. You therefore rationally choose the bundle with the utility of 150 utils--- 12 gallons of gasoline and 18 slices of pizza per week. 150 144 136 112 0 4 8 12 16 20 24 28 0 2 4 6 8 10 12 14 the bundle with the highest utility on your budget line 18 Quantity of Gasoline Quantity of Pizza
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Ch 11 Figures Figure 11.3 Your Optimal Choice When Gasoline is More Expensive
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This note was uploaded on 01/24/2012 for the course ECON 101 taught by Professor Gerson during the Fall '08 term at University of Michigan.

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Ch11Figures - Ch 11 Figures Figure 11.1 Your Budget Line...

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