Ben allocates his lunch budget between two goods, pizza and burritos. The figure to the right...

 

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Ben allocates his lunch budget between two goods, pizza and burritos. The figure to the right illustrates Ben's original budget line. Suppose that pizza is taxed, causing the price to increase (by 20 percent, for example). Then suppose instead that pizza is rationed at a quantity less than Ben's desired quantity. Show how these changes affect Ben's optimal bundle using an indifference map. 1.) Using the three-point curved line drawing tool, draw an indifference curve. Label this curve U₁. 2.) Using the point drawing tool, show an equilibrium consumption bundle that illustrates Ben maximizing satisfaction before the pizza tax. Label this point e₁. 3.) Using the line drawing tool, graph Ben's new budget line with the pizza tax. Label this line LT. 4.) Using the three-point curved line drawing tool, add a new indifference curve. Label this curve UT. 5.) Using the point drawing tool, show an equillibrium consumption bundle that illustrates Ben maximizing satisfaction with the tax on pizza. Label this point et. 6.) Using the point drawing tool, show Ben's satisfaction-maximizing bundle when pizzas are rationed at some quantity that is less than Ben's desired quantity of pizza. (Assume there is no pizza tax) Label this point e- Carefully follow the instructions above, and only draw the required objects. Pzza 4₁ Burritos Ben allocates his lunch budget between two goods, pizza and burritos. The figure to the right illustrates Ben's original budget line. Suppose that pizza is taxed, causing the price to increase (by 20 percent, for example). Then suppose instead that pizza is rationed at a quantity less than Ben's desired quantity. Show how these changes affect Ben's optimal bundle using an indifference map. 1.) Using the three-point curved line drawing tool, draw an indifference curve. Label this curve U₁. 2.) Using the point drawing tool, show an equilibrium consumption bundle that illustrates Ben maximizing satisfaction before the pizza tax. Label this point e₁. 3.) Using the line drawing tool, graph Ben's new budget line with the pizza tax. Label this line LT. 4.) Using the three-point curved line drawing tool, add a new indifference curve. Label this curve UT. 5.) Using the point drawing tool, show an equillibrium consumption bundle that illustrates Ben maximizing satisfaction with the tax on pizza. Label this point et. 6.) Using the point drawing tool, show Ben's satisfaction-maximizing bundle when pizzas are rationed at some quantity that is less than Ben's desired quantity of pizza. (Assume there is no pizza tax) Label this point e- Carefully follow the instructions above, and only draw the required objects. Pzza 4₁ Burritos

Answer rating: 100% (QA)

Answer Explanation A Budget constraint will represent all the possible combination of two ... View the full answer