Principles of Economics 2e
2nd Edition
ISBN: 9781947172364
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax

#### Concept explainers

Textbook Question
Chapter 2, Problem 1SCQ

Suppose Alphonso’s town raised the price of bus tickets to \$ 1 per trip (while file price of burgers stayed at \$ 2 and his budget remained \$ 1 0 per week.) Draw Alphonso’s new budget constraint. What happens to file opportunity cost of bus tickets?

Expert Solution & Answer
To determine

The bus tickets in Alphonso ‘s town has increased to \$1 per trip whereas the price of burger is constant at \$2 and his income is \$10 per week. Provide Alphonso’s new budget constraint. Also, comment about the opportunity cost of bus tickets.

## Answer to Problem 1SCQ

As the price of bus tickets rises, the opportunity cost of bus tickets falls.

### Explanation of Solution

The equation of budget constraint is:

PBT×QBT+PB×QB= I

Where,

PBT= Price of Bus TicketQBT=Quantity of Bus TicketPB= Price of BurgerQB= Quantity of BurgerI = Income

Therefore, the equation of new budget constraint will be as follows:

\$1×QBT+ \$2×QB= 10

The formula for opportunity cost of bus tickets would be:

Δ Price of BurgersΔ Price of Bus tickets

So, as the price of bus tickets rises, the opportunity cost of bus tickets falls.

Economics Concept Introduction

Budget Constraint: It is an equation which shows various combinations of units of good purchased at a particular price with given income.

Opportunity Cost: It is the cost of next best alternative activity.

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