Answered: nthony has already committed most of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Anthony’s Budget Line

Anthony has already committed most of his income to his monthly living expenses and saving a few dollars each month. Having made these decisions, Anthony has a remaining budget of $15 a week, which he spends on two goods: coffee and magazines. The price of a cup of coffee is $2.50 and the price of a magazine is $5.

1. Construct a table showing the alternative combinations of the two goods that Anthony might purchase in a given week.

2. Use the data in your table to graph Anthony’s budget line.

3. What is the opportunity cost of each cup of coffee? What is the opportunity cost of each magazine?

4. Based on this information, do we know how many cups of coffee or magazines Anthony should buy each week? Why or why not?

5. Anthony decides he wants to upgrades to the $5 cup of coffee- the larger cup with extra flavoring! Using a graph, show how this will change Anthony’s budget line. (Note: This is most easily demonstrated by putting both budget lines on the same graph.)

6. Suppose Anthony learns that by saving an additional $5/week he can replace his laptop in a year. Assuming he decides to save the additional $5 (and return to the less expensive coffee), how will this impact his budget line?(Be specific.)

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