Use the following data to work Problems 3 and 4 Sara's...

Use the following data to work Problems 3 and 4 Sara's income falls from $\$ 12$ to $\$ 9$ a week, while the price of popcorn is unchanged at $\$ 3$ a bag and the price of a smoothie is unchanged at $\$ 3$. What is the effect of the fall in Sara's income on the relative price of a smoothic in terms of popcorn? What is the slope of Sara's new budget line if it is drawn with smoothies on the $x$ -axis?

Use the following data to work Problems 3 and 4 Sara's income falls from $\$ 12$ to $\$ 9$ a week, while the price of popcorn is unchanged at $\$ 3$ a bag and the price of a smoothie is unchanged at $\$ 3$.
What is the effect of the fall in Sara's income on the relative price of a smoothic in terms of popcorn? What is the slope of Sara's new budget line if it is drawn with smoothies on the $x$ -axis?

Labs

Want to see this concept in action?

NEW

Explore this concept interactively to see how it behaves as you change inputs.

View Labs

Key Concepts

Budget Constraint

The budget constraint represents the combinations of goods a consumer can afford given their income and the prices of the goods. It is depicted as a line on a graph where the intercepts show the maximum quantities of each good that can be purchased when spending all income on one good. A change in income shifts the constraint inward or outward without altering the slope if the prices remain constant.

Relative Price

Relative price is the rate at which one good can be exchanged for another, determined by the ratio of their prices. In this context, since the prices of both smoothies and popcorn remain unchanged, the relative price between them remains constant regardless of the change in Sara's income.

Slope of the Budget Line

The slope of the budget line indicates the rate at which a consumer must give up units of one good to purchase an additional unit of another, essentially reflecting the opportunity cost. When the budget line is drawn with smoothies on the x-axis, the slope is equal to the negative ratio of the price of smoothies to the price of popcorn. With both prices at $3, the slope computes to -1.

Transcript

Please give Ace some feedback