Answered: Last week Sara’s income was $12 a week.…

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter20: Consumer Choice And Elasticity

Section: Chapter Questions

Problem 4CQ

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Question

Last week Sara’s income was $12 a week. The price of popcorn was $3 a bag, and the
price of a smoothie was $3.
a. Calculate Sara’s real income in terms of smoothies and her real income in terms of
popcorn.
b. What is the relative price of smoothies in terms of popcorn?
c. What is the opportunity cost of a smoothie?
d. Calculate the equation for Sara’s budget line (with bags of popcorn on the left side).
e. Draw a graph of Sara’s budget line with the quantity of smoothies on the x-axis.
f. What is the slope of Sara’s budget line? What determines its value?

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