After careful scrutiny, Robbin budgets 12 / week for Wings...

After careful scrutiny, Robbin budgets $$\$ 12 /$$ week for Wings ' $n$ ' Suds. Consider the following: a. Graph and label the axes to show how much of each good Robbin is able to buy, if the price of a buffalo wing is $$\$ 0.50$$, while the price of Coca-Cola is $$\$ 1.50$$. b. In order to attract more customers to Wings ' $n$ ' Suds, management decides to lower the price of Coca-Cola to a buck. Show what happens to Robbin's budget line compared to (a). c. Instead of (b), assume there is a sudden shortage of buffalo wings available. Now, Wings ' $n$ ' Suds has to raise the price of a wing to $$\$ 3$$. Show how this event changes Robbin's budget line relative to (a). d. Robbin, after winning $$\$ 1,000$$ in the Texas lottery, decides that she can now spend $$\$ 40 /$$ week at Wings ' $n$ ' Suds. Show how this event changes Robbin's budget line relative to (a). e. What combination of wings and Coca-Colas should Robbin buy in (a), (b), (c), and (d)?

After careful scrutiny, Robbin budgets $$\$ 12 /$$ week for Wings ' $n$ ' Suds. Consider the following:
a. Graph and label the axes to show how much of each good Robbin is able to buy, if the price of a buffalo wing is $$\$ 0.50$$, while the price of Coca-Cola is $$\$ 1.50$$.
b. In order to attract more customers to Wings ' $n$ ' Suds, management decides to lower the price of Coca-Cola to a buck. Show what happens to Robbin's budget line compared to (a).
c. Instead of (b), assume there is a sudden shortage of buffalo wings available. Now, Wings ' $n$ ' Suds has to raise the price of a wing to $$\$ 3$$. Show how this event changes Robbin's budget line relative to (a).
d. Robbin, after winning $$\$ 1,000$$ in the Texas lottery, decides that she can now spend $$\$ 40 /$$ week at Wings ' $n$ ' Suds. Show how this event changes Robbin's budget line relative to (a).
e. What combination of wings and Coca-Colas should Robbin buy in (a), (b), (c), and (d)?

Key Concepts

Budget Constraint

This concept represents all the combinations of goods a consumer can purchase given their income and the prices of those goods. It shows the trade-off between different goods, illustrating the limits imposed by a fixed budget.

Intercepts and Slope

The intercepts of the budget line indicate the maximum quantity of one good that can be bought if none of the other good is purchased, while the slope reflects the rate at which one good can be substituted for another, essentially capturing the opportunity cost determined by the ratio of the two goods’ prices.

Price Change Effects on the Budget Line

Changes in the price of one good alter the budget line by rotating or pivoting it around an intercept. A decrease in the price of one good increases its intercept and makes the line flatter, while an increase in its price decreases the intercept and makes the line steeper, reflecting how the trade-off between goods shifts with changes in relative prices.

Income Change and Its Impact on the Budget Line

An increase or decrease in income shifts the budget line outward or inward in a parallel manner. This parallel shift indicates that while the consumer's overall purchasing power changes, the relative prices (and thus the slope) remain unchanged, affecting the range of consumption choices available.

Transcript

00:01 For this question, we're told that the sweets are a low -income family with $10 ,000.

00:11 They have $10 ,000 annually available annually to spend on food and shelter.

00:18 So this is how much they spend annually.

00:20 And the food costs $2 per unit and shelter costs $1 per square foot a year.

00:40 And the smites are currently dividing $10 ,000 equally between food and shelter.

00:47 So they want to divide $10 ,000 equally for food and shelter.

01:00 And now the question says use either the marginal utility approach or the indifference curve approach.

01:08 So for the first question, we're to draw the budget constraints on a diagram with food on the vertical axis and shelter on the horizontal axis.

01:21 I would to label the current consumption choice and figure out how much they spend on food and shelter.

01:30 So we're first going to draw the budget constraints.

01:33 So we know that the family spends 10 ,000 equally on food and shelter.

01:39 So that already implies that they spend 5 ,000.

01:47 Like this implies the total spending of 5 ,000 on food in buying 2 ,500 units because if food food costs $2 per unit so we're going to spend 5 ,000 which is a part of the 10 ,000 equally on food and that can buy us 2 ,500 units of food and the remaining $5 ,000 will go into buying shelter and this can get 5 ,000 units of shelter since shelter costs a dollar per square feet so 5 ,000 units on shelter so from there we can get the budget we can figure out how to draw the budget constraint and indicates the vertical axis so the budget constraints diagram should look like this oh sorry about that and the food is going to be at this side and is in units and we have two five hundred five thousand and seven thousand five hundred and then we have um and then we have um shelter at this side i'm sorry and the shelter is in square per square feet per year that's the measurement so um and this this shelter's type we're gonna have 5 ,000 and 10 ,000 so from what we can figure out we can see that there's gonna be a square curve right meeting here and coming to 5 ,000 and the 5 ,000 right in the food is gonna come to the 10 ,000 shelter i'm gonna try to trace that.

04:38 I might not be so perfect, but if you're joining on a book, it should be good.

04:58 I don't know...

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