Budget Constraint

Chapter 3 – Budget Lines 1.       Given two goods, shelter and food, with a price of Ps=$5 and Pf=$10 respectively, and M = $100 a.       Suppose price of shelter decreases from $5 to $4/sq yd. Show the effect on the budget constraint. Write out the new budget constraint, find the new slope of the budget line and draw the old and new budget lines.       2.       Given the original budget constraint of $100 = $5S + $10F: a.       Show the effect of a rise in the price of food from $10/lb to $20/lb. Write out the new budget constraint, find the new slope and graph the new budget line.           3.       Given the original budget constraint of $100 = $5 + $10F: a.       Show the effect of a rise in the price of food from $10/lb to $20/lb and a rise in the price of shelter from $5/sq yd to $10/sq yd. Write out the new budget equation, find the new slope and graph the new budget line.       4.       Given: $100 = $5 + $10F a.       Suppose there is an increase in income from $100/wk to $120/wk. Show the effect on a graph. Find the new slope.