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Suppose you won $15 on a lotto ticket at the local 7-Eleven and decided to spend all the winnings on candy bars and bags of peanuts. The price of candy bars is $0.75 and price of peanuts is $1.50.
a. Write the budget equation and use it to construct a table showing the alternative combinations of the two products that are available.
b. Plot the data in your table as a budget line in a graph by showing the values of both Y-intercept and X-intercept, and explain what the budget line means.
c. Write down the formula showing the slope of the budget line in terms of the two prices? Use the formula to find the slope of the budget line? Why is the slope negative?
d. What is the opportunity cost of one more candy bar? One more bag of peanuts? Explain!
e. Suppose income double. How will this affect your budget line? Draw the new budget line. Explain!
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