Question

Assume that Diego has $400 per month to divide between playing paintball and playing golf. Assume that playing paintball costs $40 and playing golf costs $20. Suppose Diego plays paintball six times per month and plays golf eight times per month. a. Draw Diego's budget constraint and show that he can afford six games of paintball and eight rounds of golf. b. Assume that Diego has some unexpected expenses one month and can only spend $320 that month. Draw his new budget constraint. c. As a result of the decrease in income, Diego decides to play 11 rounds of golf and two games of paintball. What kind of a good is paintball? What kind of a good is golf? d. Assume Diego has his original $400 per month to spend and the price of paintball is still $40, but the price of golf doubles. Draw his new budget constraint.

Answer 1

(a) Given Diego's income and the prices of Golf and Paintball, his budget constraint is given by:

40P + 20G = 400.

He can afford 6 rounds of Paintball and 8 rounds of golf and will thus spend 240$ on painball and $160 on golf.

(b) As a result of fall in income, his new budget constraint is now:

40P + 20G = 320.

(c) Since Diego's quantity of golf played increases from 8 to 11 with a decrease in income and that of paintball decreases (from 6 to 2), thus, Painball is a luxury good and golf is a necessity good.

(d) New budget constraint equation:

40 P + 40G = 400