Sara’s income falls from $12 to $9 a week, while the price of popcorn is unchanged at $3 a bag and...

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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

Sara’s income is $12 a week. The price of popcorn rises from $3 to $6 a bag, and the price of a smoothie is unchanged at $3. Explain how Sara’s budget line changes with smoothies on the x –axis.

Robert · Accepted Answer

Changes in the consumer’s income and changes in the prices of the goods will shift the 
individual’s budget line. Let smoothie is X, smoothie’s price is P1. Popcorn is Y and its price 
is P2. M is consumer’s income. Now, initially, P1 = $3; P2 = $3, M1 = $12. Hence, the 
consumer’s initial budget line is, 
                                                 3X + 3Y = 12 
The initial budget line is plotted as BA in the following figure.
Now, suppose, consumer’s income, M, falls to $9, while P1 and P2 are unchanged at their 
previous levels. Let, M2 be the new income. M2 = 9.

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 Sara’s income is $12 a week. The price of popcorn rises...

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