4.1. Pedro is a college student who receives a monthly stipend from his parents of $1,000. He uses this stipend to pay rent for housing and to go to the movies (assume that all of Pedro’s other expenses, such as food and clothing have already been paid for). In the town where Pedro goes to college, each square foot of rental housing costs $1.50 per month. Each movie he attends costs $10. Let x denote the square feet of housing, and let y denote the number of movies he attends per month.

a) What is the expression for Pedro’s budget constraint?

b) Draw a graph of Pedro’s budget line.

c) What is the maximum number of square feet of housing he can purchase given his monthly stipend?

d) What is the maximum number of movies he could attend given his monthly stipend?

e) Suppose Pedro’s parents increase his stipend by 10 percent. At the same time, suppose that in the college town where he lives, all prices, including housing rental rates and movie ticket prices, increase by 10 percent.

What happens to the graph of Pedro’s budget line?