What do you know about the slope of the budget constraint

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Reference no: EM13187840

Pat is deciding how to spend his summer vacation. He has exactly forty days of vacation time, and exactly $12,000 of disposable income. He can spend his time and money in two ways: travel, or home improvement projects. For the sake of analytical tractability we will measure vacation travel, T, in units of four-day trips, and we will measure home improvement, H, in units of two-day projects, but we will also assume that Pat can choose fractions of units of both travel and home improvement. Furthermore, we will assume that for Pat, \more is better", which simply means that whenever there's a way for Pat to get more of both travel and home improvement, he will do it.
-Question : Suppose Pat tells you that he is trying to decide between four trips and ten projects, on the one hand, and six trips and seven and a half projects on the other hand.
(i) Draw Pat's budget constraint (i.e. the set of combinations that he can just aord nancially) on a neat and precise graph, with H on the vertical axis. [Sloppiness is the kiss of death in any form of analysis.]
(ii) Compute Pat's budget constraint mathematically.
(iii) Compute the price of a trip, PT , and the price of a home improvement project, PH? [Hint1: you have two unknowns, so you need two equations that link them together. Hint2: what do you know about the slope of the budget constraint?]

Reference no: EM13187840

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