Question 3 (Budget Constraint). Vince consumes gas (x1) and food (x2). Suppose the price of gas is $5 per gallon and the price of food is $10 per pound. Vince has $200 per week that he spends on the two goods. a) Draw his weekly budget constraint and put gas on the horizontal axis (food on vertical axis). Label the axes, intercepts, and slope of the budget line. (Note: draw a large graph) b) Suppose there is a gas shortage and the government limits the amount of gas to 30 gallons per consumer per week. Draw this new budget constraint on the graph above (you may use dashed line to reflect ration) c) Alternatively (instead of the ration in part b)), suppose the price of gas increases to $8 per gallon. Draw this new budget constraint on the graph above.
Question 3 (Budget Constraint). Vince consumes gas (x1) and food (x2). Suppose the price of gas is $5 per gallon and the price of food is $10 per pound. Vince has $200 per week that he spends on the two goods. a) Draw his weekly budget constraint and put gas on the horizontal axis (food on vertical axis). Label the axes, intercepts, and slope of the budget line. (Note: draw a large graph) b) Suppose there is a gas shortage and the government limits the amount of gas to 30 gallons per consumer per week. Draw this new budget constraint on the graph above (you may use dashed line to reflect ration) c) Alternatively (instead of the ration in part b)), suppose the price of gas increases to $8 per gallon. Draw this new budget constraint on the graph above.
Micro Economics For Today
10th Edition
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Tucker, Irvin B.
Chapter6: Consumer Choice Theory
Section6.A: Indifference Curve Analysis
Problem 3SQP
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Transcribed Image Text:Question 3 (Budget Constraint). Vince consumes gas (x1) and food (x2). Suppose the price of gas is $5 per gallon
and the price of food is $10 per pound. Vince has $200 per week that he spends on the two goods.
a) Draw his weekly budget constraint and put gas on the horizontal axis (food on vertical axis). Label the
axes, intercepts, and slope of the budget line. (Note: draw a large graph)
b) Suppose there is a gas shortage and the government limits the amount of gas to 30 gallons per consumer
per week. Draw this new budget constraint on the graph above (you may use dashed line to reflect
ration)
c) Alternatively (instead of the ration in part b)), suppose the price of gas increases to $8 per gallon. Draw
this new budget constraint on the graph above.
d) Does Vince prefer the ration of the increase in prices? Explain why. If his preference cannot be
determined, explain why not.
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