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Derive an equation for the budget constraint

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Reference no: EM131221255

Suppose that Tiffany has an income of $20 per week and she spends it on frozen pizza (P) and beer (B). The price of a bottle of beer (PB) is $1 and the price of frozen pizza (Pp) is $5 per pizza.

(a) Derive an equation for the budget constraint.

(b) Draw the budget constraint with beer on the horizontal axis and pizza on the vertical axis. Clearly indicate the x and y intercepts.

(c) What is the slope of the budget constraint?

(d) On a separate graph, draw the budget constraint when the price of beer increases to $2 per bottle.What happens to the slope of the budget constraint compared to your answer in Part (c)

(e) On a separate graph, draw the budget constraint when Tiffany's income falls to $15 per week (assume that the price of beer is again $1 per bottle).  What happens to the slope of the budget constraint compared to your answer in Part(c)?

Reference no: EM131221255

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