Construct the budget constraint for a consumer

Reference no: EM1393373

Will's Bagel Stop offers a frequent buyer program whereby a consumer receives a stamp each time she purchases one dozen bagels for $5. After a consumer accrues 10 stamps, she receives one dozen bagels free.

This offer is an unlimited offer, valid throughout the year. The manager knows her products are normal goods. Given this information, construct the budget constraint for a consumer who has $150 to spend on bagels and other goods throughout the year.

Does Will's frequent buyer program have the same effect on the consumption of its bagels that would occur if it simply lowered the price of one dozen bagels by 3%? Explain.

Reference no: EM1393373

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