Answer Happy

Problem 5: Changes in the Budget Constraint (4 points) Silvio's friend Paulie also enjoys consuming hamburgers and fries, and has a similarly hearty appetite. On the graph below, BC1 represents Paulie's initial budget constraint, and BC2 represents his subsequent budget constraint. Suppose that Paulie's weekly fast food budget starts at $240. Fries per week 140 120 100 80 60 40 20 0 20 BC₂ 40 BC₁ 60 80 Hamburgers per week a. Based on the information that we have, the price of fries must be $ and the price of hamburgers must be $

b. Briefly describe what must have happened in order for Paulie to move from BC1 to BC2. Be specific about what changed and by how much. How do you know? From BC1 to BC2 we know one thing has changed: either the price of hamburgers, the price of fries, or Paulie's income. First, determine which of those three must have changed, then determine the new value of either the price or income. c. After the move from BC1 to BC2, what has happened to Paulie's utility? How do you know? Edit View Insert Format Tools Table 12pt Paragraph BIUAT² 8