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Suppose that Tiffany has an income of $20 per week and she spends it on frozen pizza (P) and beer (B).The price of a bottle of beer (PB) is $1 and the price of frozen pizza (Pp) is $5 per pizza.
(a) Derive an equation for the budget constraint.
(b) Draw the budget constraint with beer on the horizontal axis and pizza on the vertical axis. Clearly indicate the x and y intercepts.
(c) What is the slope of the budget constraint?
(d) On a separate graph, draw the budget constraint when the price of beer increases to $2 per bottle.What happens to the slope of the budget constraint compared to your answer in Part (c)
(e) On a separate graph, draw the budget constraint when Tiffany's income falls to $15 per week (assume that the price of beer is again $1 per bottle). What happens to the slope of the budget constraint compared to your answer in Part(c)?
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