An article in the Wall Street Journal noted that as a result of lower gasoline prices, sales "improved notably over the last two months at Back Yard Burgers, a dining chain based in Nashville, Tenn." A student is asked to use an indifference curve and budget constraint graph to show the effect on a consumer of lower gasoline prices, making the following assumptions:
1. The consumer has $120 per month to spend on gasoline and burgers.
2. The price of gasoline falls from $3.00 per gallon to $2.00 per gallon.
3. The price of burgers is unchanged at $6.
The student draws the following graph.

Comment on whether the student has correctly drawn each of the following.
a. The consumer's original budget constraint before the decline in the price of gasoline
b. The consumer's budget constraint after the decline in the price of gasoline
c. The change in the quantity of gasoline the consumer buys after the decline in the price of gasoline

Transcribed Image Text:

Burgers 30 Burger, 20 Burger, Gasoline, Gasoline, 40 Gasoline 60