You have just finished your work for the week, and have just gotten your paycheck of $800. It is the weekend, so you decided to spend your money on your two favorite activities: getting fat by eating pastelitos (pastries) and being lazy by watching telenovelas (soap operas). Assume that the price of one pastelito is $4 and the price of watching one telenovela is $10. a) Given this information, what would the budget line equation look like? b) Graph the budget line using the two extreme points, following the methodology listed in the lectures. Label it “Budget Line 1”. Put pastelitos on the vertical axis and telenovelas on the horizontal axis. Suppose that the price of a pastelito increases to $8. The price of a telenovela stays constant at $10. c) What happens to the budget line? Graph it, showing the specific points/numbers on each axis, and show how it moves in relation to the original budget line. Label it “Budget Line 2”. Suppose the price of a telenovela decreases to $5. The price of a pastelito stays constant at $8. d) What happens to the budget line? Graph it, showing the specific points/numbers on each axis, and show how it moves in relation to the original budget line. Label it “Budget Line 3”. Suppose your income increases to $1000. Assume that the price of one pastelito is $4 and the price of watching one telenovela is $10. e) What happens to the budget line? Graph it, showing the specific points/numbers on each axis, and show how it moves in relation to the original budget line. Label it “Budget Line 4”.
