Suppose Alphonso's town raises the price of bus tickets from 0.50 to 1 and the price of burger

Suppose Alphonso's town raises the price of bus tickets from...

Key Concepts

Opportunity Cost

Opportunity cost is the value of the next best alternative that must be forgone when making a choice. It is determined by the relative prices of the goods or services under consideration. In this context, even though the nominal prices of both bus tickets and burgers have doubled, the ratio of their prices remains constant, leaving the opportunity cost unchanged.

Relative Prices

Relative prices represent how many units of one good must be given up to obtain another. When both goods experience a proportional increase in price, their ratio does not change, meaning that the trade-off between them stays the same. This is why, despite the rise in individual prices, the opportunity cost in terms of relative pricing remains unaffected.

Budget Constraint

A budget constraint illustrates all the combinations of goods and services that can be purchased given the available income and the prices of those goods. Changes in the prices of goods alter the slope of the budget line (if the changes affect the relative prices) whereas an increase in income shifts the budget line outward without altering its slope. In this case, while the doubling of prices keeps the slope unchanged (because the relative cost remains constant), the increase in weekly spending money allows for a parallel outward shift of the budget constraint, thereby expanding the set of affordable choices.

Transcript

00:01 So this question says that suppose alfonso's town raises the price of bus tickets.

00:12 So bus tickets goes from 0 .50 to a dollar.

00:24 And the price of burgers rises from $2 to $4.

00:35 Now, why is the opportunity cost of budget, of bus tickets, unchanged? and suppose alfonso's weekly spending money increases from 10 to 20, how is this budget constraint affected from our three changes? so we're first going to find out why is the opportunity cost of bus tickets unchanged? before we start that, we know that opportunity cost is the value of the next best alternative for gone.

01:07 So for gone.

01:38 So when the price of the bus tickets is 0 .50 cents, then our phones are, has to you know sacrifice one over four of the units of bogers as um how do i put it so so 0 .50 pride is the price of bus tickets is equal to um two dollars for a bugger because when the bus tickets are 2 .50 the burgers are two dollars and two dollars is just for a bugger so therefore when the price of bus tickets is 0 .50 then they have have to sacrifice one over four of the unit of bugger because when you um because when you multiply 0 .50 times four you get two dollars so um to get a price of a bus ticket you have to sacrifice one over four the unit of bugger because the price of tickets is one over four the units of the burger so this is one over four the units of the burger so if a person spends the 0 .50 cents on the bus ticket then the person is not able to buy the full burger because it doesn't have the sacrifice to spend the parts in the 1 over 4 because if you spend your 0 .50 cents on a bus ticket you're not able to buy the bugger because you're not because you have to sacrifice a 0 .4.

03:30 50 cents in part one over four so when the price of the bus ticket increases to one then the price of burger becomes four dollars so because you can see that increases so we just say so when when price of ticket increases to one then price of burger it becomes four dollars because that's what the question said so in that case that this situation the person um the person also has to give up one over four the units of the burger for the price ticket because if you divide um four by one you're going to get four so a person has to give up one over four the units of a burger to get the bus ticket because if you decide to go with the ticket and not get a bugger you're you're giving up one of a four of the boggards to get just to get the tickets if that makes sense so that asks us the question as to why um the opportunity cost of bus tickets you may not change it's because um you're giving up one over four of the bus tickets for the bus tickets just to get of the bugger just to get the bus tickets so therefore the opportunity cost of the bus ticket is unchanged in both scenarios.

05:52 Okay...

Please give Ace some feedback