Question

Homework #1   

John Q. Public spends all of his income on gas and burgers. Draw his budget constraint for these products when the following are true:

• Graph A: his income is $150, the cost of a gallon of gas is $3 and a cost of a burger is $5.
• Graph B: his income is $210, the cost of a gallon of gas is $3 and a cost of a burger is $5.
• Graph C: his income is $150, the cost of a gallon of gas is $5 and a cost of a burger is $5.
• Add an indifference map into graph A. How many gallons of gas and how many burgers will he buy to be at equilibrium?
• Add an indifference map into graph B. How many gallons of gas and how many burgers will he buy to be at equilibrium?
• Add an indifference map into graph C. How many gallons of gas and how many burgers will he buy to be at equilibrium?
• Does the equilibrium level of gallons of gas and number of burgers change due to the changes in income and costs?

Answer 1