Ch 9 Indifference curves-shortversion

# Lisas total expenditure on pop and movies is price of

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Unformatted text preview: n pop and movies is: (Price of pop) x (quantity of pop) + (Price of movies) x (quantity of movies) Her income is \$30. The Budget Equation Pp = price of pop Pm = price of movies Qp = quantity of pop Qm = quantity of movie y = income. Lisa’s budget line can be written as: Pp Qp + Pm Qm = y or, \$3 Qp + \$6 Qm = \$30 The Budget Equation The We can rewrite the budget line to show how the quantity of pop Lisa can buy depends on how many movies she sees. Step 1: Divide both Step sides by Pp sides Step 2: Pm xQm Pp Subtract from both from sides Pm y Qp + xQm = Pp Pp y Pm Qp = − xQm Pp Pp The Budget Equation The Step 3: Substitute in Step the prices Lisa pays for pop and movies and her income and \$30 \$6 Qp = − xQm \$3 \$3 Qp = 10 − 2Qm Step 4: Simplify! . Real Income Real inco...
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## This document was uploaded on 03/14/2014.

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