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Chapter 2: Q. 1 (page 43)

Suppose Alphonso鈥檚 town raised the price of bus tickets to \(1 per trip (while the price of burgers stayed at \)2 and

his budget remained $10 per week.) Draw Alphonso鈥檚 new budget constraint. What happens to the opportunity cost

of bus tickets?

Short Answer

Expert verified

The formula for opportunity cost of bus tickets is:

鈭�PriceofBurgers鈭�PriceofBustickets.

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

Step by step solution

01

Introduction

Budget Constraint: A budget constraint is an equation that illustrates possible combinations of units of good purchased at a given price with a given income.

The expense of the next best alternative activity is known as the opportunity cost.

02

Explanation

The equation of budget constraint is :

PBT脳蚕BT+PB脳蚕B=I

where,

PBT=Price of Bus Ticket

QBT=Quantity of Bus Ticket

PB=Price of Burger

QB=Quantity of Burger ,I=Income

03

Conclusion

Therefore, the equation of new budget constraint is :

$1脳QBT+$2脳蚕B=10.

The formula for opportunity cost of bus tickets is:

鈭�PriceofBurgers鈭�PriceofBustickets.

Hence, the opportunity cost of bus tickets would decline with an increase in the price of bus ticket and would increase if the price of bus tickets fall.

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