Problem #1

Liza has an income of P4800. The price of gasoline per liter that she uses is P80
and the price of coffee in the coffee shop is P160. Currently, she consumes 36 liters of
gasoline.
a) Find the slope of the budget constraint, then graph.
b) How many drinks of coffee does she consume?
c) If the government imposes a sales tax of P16/liter on gasoline, Liza will consume
35 liters of gas. Find the new slope of the budget constraint and how many time
can she buy coffee?

Problem #2
Given Jinas current consumption of French fries and pizza, the market price of fries per bag is
P120 and the market price of pizza is P300. Her income is 3000.
a) Graph the budget constraint below and identify its slope.
b) If she currently consumes 10 bags of fries, how many pizzas does she consume?

Problem #3
There are only two goods in the world: tomatoes (A) and potatoes (B). Your old budget
constraint was 5A+10B=240. Your new budget constraint is 5A+12B=240
a) What has changed? Be specific as possible.
b) Sketch the old budget constraint, with A on the horizontal axis and B on the vertical.
Label point x as the consumers consumption choice.
Sketch the new budget constraint. Assuming A and B are substitutes, label point z as the new
consumers choice.

Problem #4
Any good southern breakfast includes grits and bacon. Suppose we allocate $60 per
week to consumption of grits and bacon that grits cost $2 per box and bacon costs $3 per
package. Use a graph with boxes of grits on the horizontal axis and packages of bacon on the
vertical to answer the following.
a) Illustrate familys weekly budget constraint and choice set.
b) How would your graph change if a sudden appearance of a rare hog disease caused the
price of bacon to rise to $6 per package, and how does this change the opportunity cost
of bacon and grits?
c) What happens in your graph if (instead of the change in (b)) the loss of my job caused
us to decrease our weekly budget for Southern breakfast from $60 to $30? How does
this change the opportunity cost of bacon and grits?

Problem #5
You have an income of $40 to spend on two commodities. Commodity 1 costs $10 per unit, and
commodity 2 costs $5 per unit.
a) Write down your budget equation.
b) If you spent all your income on commodity 1, how much could you buy?
c) If you spent all of your income on commodity 2, how much could you buy?
d) Suppose that the price of commodity 1 falls to $5 while everything else stays the same.
Write down your new budget equation.

Problem #6
Answer the following questions based on the table. A consumer is able to consume the
following bundles of rice and beans when the price of rice is $2 and the price of beans is $3.
Rice Beans
12 0
6 4
0 8

a. How much is this consumer's income?
b. Draw a budget constraint given this information. Label it B.
c. Construct a new budget constraint showing the change if the price of rice falls $1. Label this
and give a brief explanation or interpretation about the graph.
d. Given the original prices for rice ($2) and beans ($3), construct a new budget constraint if this
consumer's income increased to $48. Label this D.
Problem #7
On a recent doctors visit, you have been told that you must watch your calorie intake
and must make sure you get enough vitamin E in your diet. You have decided that you will eat
only steak and rice. A nice steak has 300 calories and 30 units of vitamins, and a serving of
carrots has 150 calories and 10 units of vitamins. Your doctors instructions are that you must
eat no more than 2000 calories and consume at least 150 units of vitamins per day.
Requirements:
a. Find the slope of the budget constraint for calories and vitamins intake.
b. If you already ate 2 servings of steak today, how many servings of rice can you eat for
dinner to consume the maximum amount of calories you can eat per day?

Problem #8
Tibo was given P2, 000 for the week, and with that money, he wants to buy pizza and
cupcakes. The box of pizza Tibo wanted costs P400, while a dozen of cupcake costs P200.
Requirements:
a. Find the slope of the budget constraint.
b. If Tibo bought 3 boxes of pizzas, how many dozen of cupcakes can he buy to spend
all of his money?
Problem #9
Hencey has a monthly income of P8, 000 and with that money; she decided to buy
shoes and clothes. Her shoes cost of one fourth of the costs of her clothes plus one half of her
income weekly. Her clothes costs one-fourth of her income monthly. Assume that her income
weekly is P400.
Requirement:
a. find the slope of the budget constraint
Problem #10
If Amy spent her entire allowance, she could afford a 8 candy bars and 8 comic books a
week. She could also just afford 10 candy bars and 4 comic books a week. The price of a candy
bar is 50 cents. Draw her budget line. What is Amys weekly allowance?
Problem #11
Edmund Stench consumes two commodities, namely garbage and punk rock video
cassettes. He doesnt actually eat the former but keeps it in his backyard where it is eaten by
billy goats and assorted vermin. The reason that he accepts the garbage is that people pay him
$2 per sack for taking it. Edmund can accept as much as garbage as he wishes at that price. He
has no other source of income. Video cassettes cost him $6 each.
a. If Edmund accepts zero sacks of garbage, how many video cassettes can he buy?
b. If he accepts 15 sacks of garbage, how many video cassettes can he buy?
c. Write down an equation for his budget line.
Problem #12
d. Graph the budget constraint for a consumer who can buy either of two goods, X and Y.
The price of good X is $10 per unit, and the price of good Y is $5 per unit, and the
consumer has $200 to spend. (Put good X on the horizontal axis and good Y on the
vertical axis).
e.
f. a) What is the slope of the budget constraint?
g. b) Suppose the price of good Y increases to $10. Use a graph to show how the budget
constraint changes.