Antonio buys five new college textbooks during his first...

Antonio buys five new college textbooks during his first year at school at a cost of $\$ 80$ each. Used books cost only $\$ 50$ each. When the bookstore announces that there will be a 10 percent increase in the price of new books and a 5 percent increase in the price of used books, Antonio's father offers him $\$ 40$ extra. a. What happens to Antonio's budget line? Illustrate the change with new books on the vertical axis. b. Is Antonio worse or better off after the price change? Explain.

Antonio buys five new college textbooks during his first year at school at a cost of $\$ 80$ each. Used books cost only $\$ 50$ each. When the bookstore announces that there will be a 10 percent increase in the price of new books and a 5 percent increase in the price of used books, Antonio's father offers him $\$ 40$ extra.
a. What happens to Antonio's budget line? Illustrate the change with new books on the vertical axis.
b. Is Antonio worse or better off after the price change? Explain.

Key Concepts

Budget Constraint

A budget constraint represents all the combinations of two goods that a consumer can afford given their income and the prices of those goods. It is depicted as a line on a graph, with each axis representing the quantity of one good, and its slope reflects the relative prices of the two goods.

Effects of Price Changes on Budget Lines

When the price of a good increases, the budget line rotates inward on the axis of that good, meaning the consumer can now afford less of it for a given income. Conversely, a price decrease rotates the budget line outward along that good’s axis, changing the slope and the trade-offs available to the consumer.

Income Compensation in Consumer Choice

Income compensation involves adjusting a consumer’s income—through additional funds or subsidies—to partially or fully offset the adverse effects of a price increase. Such adjustments shift the budget line outward, which can improve or restore the consumer’s capacity to purchase goods, affecting overall welfare.

Transcript

00:01 So antonio buys five new color chess books during his first year at school at a cost of, so five ted book at $90 each.

00:16 And use books cost.

00:20 So these are new books and the used books cost $60 each.

00:28 So when the bookstore announces that there will be a 10 % increase in price of new books and 10 % are 5 % increase so 10 % increase in new books and 10 % increase in new books and 5 % increase in used books so antonio father offers in $60 extra right because of the increase now the first question what happens to antonio's budget line and explain the change with the new books on vertical axis so to answer the first question if new books are chosen to purchase use books should not be considered because the requirement of books are fixed at five books per year right so therefore the budget line is in between the new books on the vertical axis and the other consumption or the resulta axis so the budget line is in between the new books on the vertical axis or y -axis and other consumption on the x -axis and the x -axis so before the price change, before the increase in the price of the book, yeah, the number of books was five, right? and of new books was five.

02:37 The unit of other consumption, which is q, which is equals q0.

02:41 And total cost of books would therefore be five new books, multiplied by $90 each, which is $4 .50.

02:49 So before the price change, new books will cost five, because around $5.

02:57 Of each, multiplied by $90 each, and this is equal to $4 .50.

03:03 So now the budget line is going to be bl0, right? now, after the price change, after the price change, per new book price will now be equals to $90 multiplied by 1 plus 10%.

03:33 It's 10 % increase, right? so this would be equals to 90 multiplied by 1 .10, and this is $99.

03:41 So the book will now cost $99...

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