Pedro is a college student who receives a monthly stipend from his parents of $1,000. He uses this stipend to pay rent for housing and to go to the movies (you can assume that all of Pedro's other expenses, such as food and clothing have already been paid for). In the town where Pedro goes to college, each square foot of rental housing costs $2 per month. The price of a movie ticket is $10 per ticket. Let x denote the square feet of housing, and let y denote the number of movie tickets he purchases per month.
a) What is the expression for Pedro's budget constraint?
b) Draw a graph of Pedro's budget line.
c) What is the maximum number of square feet of housing he can purchase given his monthly stipend?
d) What is the maximum number of movie tickets he can purchase given his monthly stipend?
e) Suppose Pedro's parents increase his stipend by 10 percent. At the same time, suppose that in the college town he lives in, all prices, including housing rental rates and movie ticket prices, increase by 10 percent. What happens to the graph of Pedro's budget line?