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Problem

Every year, Heather hosts a holiday party for her friends. Her party budget is $200. Heather spends her budget on food platters that cost $25 each and on entertainment, which costs $50 per hour.

a. Graph Heather's budget constraint for food and entertainment.

b. To reward her loyal business, the entertainment company Heather hires has offered her a 50 percent discount on entertainment purchases for this year's party. On your graph, illustrate Heather's new budget constraint for food and entertainment.

c. Assuming that food platters and entertainment are normal goods, what can you say about the quantity of each good that Heather will purchase after the discount? Will the quantity of entertainment increase or decrease, or is the change uncertain? Will the quantity of food increase or decrease, or is the change uncertain?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M92756197

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