1. Suppose Mary has an income of $315 per month and eats out for $15 a...

1. Suppose Mary has an income of $315 per month and eats out for $15 a dinner and sees movies at a cost of $9 per movie.

a.Explain why you do not need to graph her budget constraint to determine the slope, given the information above. What is the value of the slope of the budget constraint?

b.Suppose Mary finds a new job and now makes $360 per month. However, her local movie theater raises ticket prices to $12. Draw Mary’s new budget constraint, with the quantity of movies on the vertical axis and dinners on the horizontal axis, appropriately labeling the values for the x-intercept and y-intercept.

c.Is it feasible for Mary to go out to dinner 12 times and go to the movies 17 times during the month with her new income? Explain your answer.

Solutions

Expert Solution

1.a. As Mary has an income of $315 per month and eats out for $15 a dinner and sees movies at a cost of $9 per movie , her budget constraint will be 15d+9m=135 where d=number of total dinner, m= number of total movies

As she has an fixed income , to consume more of one service she should give up som,e units of another service here.This depicts the slope of the budget line. To consume one more dinner she has to give up one movie , thus the slope of the budget line is 15/9=5/3 which depicts how much amount of movie she has to give up for consume one more extra dinner , we dont need to graph the budget line for this.

b.The new budget line of Mary wil be 15d+12m=360

c.If Mary goes out to dinner 12 times and go to the movies 17 times during the month with her new income her total expenditure will be 12X15+12X17 = 384 which is more than her monthli income thus it is not feasible for her.

Rahul Sunny answered 1 year ago

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