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Chapter 3: Q9. (page 129)

Debra usually buys a soft drink when she goes to a movie theater, where she has a choice of three sizes: the 8-ounce drink costs \(1.50, the 12-ounce drink \)2.00, and the 16-ounce drink $2.25. Describe the budget constraint that Debra faces when deciding how many ounces of the drink to purchase. (Assume that Debra can costlessly dispose of any of the soft drink that she does not want.

Short Answer

Expert verified

Debra鈥檚 budget constraint will be:

1.9x + 0.7y + 0.14z = 5.75

Step by step solution

01

Definition and equation of a budget line

The data in question suggest that as the size of soft drinks increases, the budget line becomes more inelastic. It can be verified from the following computation.

The per-unit cost for :

8ounces:1.508=1.912ounces:2.0012=0.716ounces:2.2516=0.14

When Debra buys 8-ounce, she pays $1.9 per ounce; when she buys 12-ounce, she pays $0.7 per ounce, and when she buys 16-ounce, she pays $0.14 per ounce.

02

Drawing the budget line

The budget constraint will be given by:

1.9x1 + 0.7x2 + 0.14x3 = 5.75

Where $5.75 is Debra鈥檚 income, and x1,x2, andx3 are the three consumption bundles.

The following figure shows Debra鈥檚 budget line.

The budget line has two kinks (at 8 & 12) showing different elasticities for different bundles.

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Most popular questions from this chapter

Antonio buys five new college textbooks during his first year at school at a cost of \(80 each. Used books cost only \)50 each. When the bookstore announces that there will be a 10 percent increase in the price of new books and a 5 percent increase in the price of used books, Antonio鈥檚 father offers him $40 extra.

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