Home / Business / Economics / PART 1 (17 points) Income compensated budget constraint Pizza and beer consumption for Bob. . Initial Budget: $75 • Price Pizza: $15 • Price Beer: $5 1. (2 points) Draw Bob's budget line for pizza and beer with pizza on the horizontal axis. 2. (1 point) What is the Y-intercept? (The Y-intercept is the point where the budget line crosses the Y-axis. Remember PART 1 (17 points) Income compensated budget constraint Pizza and beer consumption for Bob. . Initial Budget: $75 • Price Pizza: $15 • Price Beer: $5 1. (2 points) Draw Bob's budget line for pizza and beer with pizza on the horizontal axis. 2. (1 point) What is the Y-intercept? (The Y-intercept is the point where the budget line crosses the Y-axis. Remember that Y-axis is the beer axis) 3. (1 point) What is the slope of the budget line? 4. (1 point) What is the X-intercept? 5. (2 points ) Suppose Bob chose to purchase 3 pizzas and 6 beers. Use the equation of Bob's budget line to show that 6 and 3 is a point on the above budget line. 6. (2 points) Suppose the price of pizza drops to $10, while the price of beer remains $5 and Bob's budget remains $75. In one drawing, redraw the original Budget line (where the price of pizza was $15) and draw a new budget constraint (I will refer to this later as Budget Line 2) where the price of pizza is $10. ( Your picture will have two budget lines with the second one being less steep than the original. (We will eventually draw a third budget line on this same picture) 7. (2 points) What are the Y-intercept (Beer), the slope, and the X-intercept (Pizza) for the new budget line? a 8. (4 points) We are now ready to construct the income-compensated budget line. The income-compensated budget line is used to demonstrate how a consumer will react to a change of relative prices while holding purchasing power constant. To perform this task we use Bob's original consumption bundle of 3 pizzas and 6 beers. We want to construct a budget line such that Bob can only afford to purchase 3 pizzas and 6 beers while the price of beer is $5 and the price of pizza is $10. 1. The income-compensated budget line is a line with the same slope as Budget Line 2 from above that crosses through the point (x = 3, y = 6). To solve for the income-compensated line you can use the slope intercept formula (Y = mx + b) where m is the slope and b is the Y-intercept. Simply plug in the slope from Budget Line 2 form and then use x = 3 and y = 6 to solve for b. Once you have the equation for the income compensated budget line you can solve for the X-intercept by plugging in O for Y. Now add the income-compensated budget line to the drawing above making sure that the income- compensated budget line crosses through the point (x = 3, y = 6) which is also on the original budget line. 9. (2 points) At the new prices (pizza $10, beer $5) How much income does Bob need to purchase the original bundle of 3 pizzas and 6 beers?

Question PART 1 (17 points) Income compensated budget constraint Pizza and beer consumption for Bob. . Initial Budget: $75 • Price Pizza: $15 • Price Beer: $5 1. (2 points) Draw Bob's budget line for pizza and beer with pizza on the horizontal axis. 2. (1 point) What is the Y-intercept? (The Y-intercept is the point where the budget line crosses the Y-axis. Remember PART 1 (17 points) Income compensated budget constraint Pizza and beer consumption for Bob. . Initial Budget: $75 • Price Pizza: $15 • Price Beer: $5 1. (2 points) Draw Bob's budget line for pizza and beer with pizza on the horizontal axis. 2. (1 point) What is the Y-intercept? (The Y-intercept is the point where the budget line crosses the Y-axis. Remember that Y-axis is the beer axis) 3. (1 point) What is the slope of the budget line? 4. (1 point) What is the X-intercept? 5. (2 points ) Suppose Bob chose to purchase 3 pizzas and 6 beers. Use the equation of Bob's budget line to show that 6 and 3 is a point on the above budget line. 6. (2 points) Suppose the price of pizza drops to $10, while the price of beer remains $5 and Bob's budget remains $75. In one drawing, redraw the original Budget line (where the price of pizza was $15) and draw a new budget constraint (I will refer to this later as Budget Line 2) where the price of pizza is $10. ( Your picture will have two budget lines with the second one being less steep than the original. (We will eventually draw a third budget line on this same picture) 7. (2 points) What are the Y-intercept (Beer), the slope, and the X-intercept (Pizza) for the new budget line? a 8. (4 points) We are now ready to construct the income-compensated budget line. The income-compensated budget line is used to demonstrate how a consumer will react to a change of relative prices while holding purchasing power constant. To perform this task we use Bob's original consumption bundle of 3 pizzas and 6 beers. We want to construct a budget line such that Bob can only afford to purchase 3 pizzas and 6 beers while the price of beer is $5 and the price of pizza is $10. 1. The income-compensated budget line is a line with the same slope as Budget Line 2 from above that crosses through the point (x = 3, y = 6). To solve for the income-compensated line you can use the slope intercept formula (Y = mx + b) where m is the slope and b is the Y-intercept. Simply plug in the slope from Budget Line 2 form and then use x = 3 and y = 6 to solve for b. Once you have the equation for the income compensated budget line you can solve for the X-intercept by plugging in O for Y. Now add the income-compensated budget line to the drawing above making sure that the income- compensated budget line crosses through the point (x = 3, y = 6) which is also on the original budget line. 9. (2 points) At the new prices (pizza $10, beer $5) How much income does Bob need to purchase the original bundle of 3 pizzas and 6 beers?

4TRBD4 The Asker · Economics

Transcribed Image Text: PART 1 (17 points) Income compensated budget constraint Pizza and beer consumption for Bob. . Initial Budget: $75 • Price Pizza: $15 • Price Beer: $5 1. (2 points) Draw Bob's budget line for pizza and beer with pizza on the horizontal axis. 2. (1 point) What is the Y-intercept? (The Y-intercept is the point where the budget line crosses the Y-axis. Remember that Y-axis is the beer axis) 3. (1 point) What is the slope of the budget line? 4. (1 point) What is the X-intercept? 5. (2 points ) Suppose Bob chose to purchase 3 pizzas and 6 beers. Use the equation of Bob's budget line to show that 6 and 3 is a point on the above budget line. 6. (2 points) Suppose the price of pizza drops to $10, while the price of beer remains $5 and Bob's budget remains $75. In one drawing, redraw the original Budget line (where the price of pizza was $15) and draw a new budget constraint (I will refer to this later as Budget Line 2) where the price of pizza is $10. ( Your picture will have two budget lines with the second one being less steep than the original. (We will eventually draw a third budget line on this same picture) 7. (2 points) What are the Y-intercept (Beer), the slope, and the X-intercept (Pizza) for the new budget line? a 8. (4 points) We are now ready to construct the income-compensated budget line. The income-compensated budget line is used to demonstrate how a consumer will react to a change of relative prices while holding purchasing power constant. To perform this task we use Bob's original consumption bundle of 3 pizzas and 6 beers. We want to construct a budget line such that Bob can only afford to purchase 3 pizzas and 6 beers while the price of beer is $5 and the price of pizza is $10. 1. The income-compensated budget line is a line with the same slope as Budget Line 2 from above that crosses through the point (x = 3, y = 6). To solve for the income-compensated line you can use the slope intercept formula (Y = mx + b) where m is the slope and b is the Y-intercept. Simply plug in the slope from Budget Line 2 form and then use x = 3 and y = 6 to solve for b. Once you have the equation for the income compensated budget line you can solve for the X-intercept by plugging in O for Y. Now add the income-compensated budget line to the drawing above making sure that the income- compensated budget line crosses through the point (x = 3, y = 6) which is also on the original budget line. 9. (2 points) At the new prices (pizza $10, beer $5) How much income does Bob need to purchase the original bundle of 3 pizzas and 6 beers?
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Transcribed Image Text: PART 1 (17 points) Income compensated budget constraint Pizza and beer consumption for Bob. . Initial Budget: $75 • Price Pizza: $15 • Price Beer: $5 1. (2 points) Draw Bob's budget line for pizza and beer with pizza on the horizontal axis. 2. (1 point) What is the Y-intercept? (The Y-intercept is the point where the budget line crosses the Y-axis. Remember that Y-axis is the beer axis) 3. (1 point) What is the slope of the budget line? 4. (1 point) What is the X-intercept? 5. (2 points ) Suppose Bob chose to purchase 3 pizzas and 6 beers. Use the equation of Bob's budget line to show that 6 and 3 is a point on the above budget line. 6. (2 points) Suppose the price of pizza drops to $10, while the price of beer remains $5 and Bob's budget remains $75. In one drawing, redraw the original Budget line (where the price of pizza was $15) and draw a new budget constraint (I will refer to this later as Budget Line 2) where the price of pizza is $10. ( Your picture will have two budget lines with the second one being less steep than the original. (We will eventually draw a third budget line on this same picture) 7. (2 points) What are the Y-intercept (Beer), the slope, and the X-intercept (Pizza) for the new budget line? a 8. (4 points) We are now ready to construct the income-compensated budget line. The income-compensated budget line is used to demonstrate how a consumer will react to a change of relative prices while holding purchasing power constant. To perform this task we use Bob's original consumption bundle of 3 pizzas and 6 beers. We want to construct a budget line such that Bob can only afford to purchase 3 pizzas and 6 beers while the price of beer is $5 and the price of pizza is $10. 1. The income-compensated budget line is a line with the same slope as Budget Line 2 from above that crosses through the point (x = 3, y = 6). To solve for the income-compensated line you can use the slope intercept formula (Y = mx + b) where m is the slope and b is the Y-intercept. Simply plug in the slope from Budget Line 2 form and then use x = 3 and y = 6 to solve for b. Once you have the equation for the income compensated budget line you can solve for the X-intercept by plugging in O for Y. Now add the income-compensated budget line to the drawing above making sure that the income- compensated budget line crosses through the point (x = 3, y = 6) which is also on the original budget line. 9. (2 points) At the new prices (pizza $10, beer $5) How much income does Bob need to purchase the original bundle of 3 pizzas and 6 beers?

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