Question
Alex is an undergraduate student who has been given money by her parents to spend on two possible goods: football tickets (F) and concert tickets
Alex is an undergraduate student who has been given money by her parents to spend on two possible goods: football tickets (F) and concert tickets (C)
a. Sketch the budget constraint for Alex (denote payment from parents as I, Prices PF and PB)
b. Explain the condition whereby Alex is maximizing her utility.
c. Suppose the price of football tickets has doubled to cover the cost of a new stadium. Show how this will affect Alex's budget constraint
d. Use the condition from part (b) and your answer to part (c) to describe how the increase in the price of football tickets will affect Alex's consumption of football and concert tickets.
Now assume we know Alex has received $150 from her parents. Football tickets and books are both $25. The following table shows the total amount of utility Alex gets from a given number of each of the goods:
Units Football Tickets Concert Tickets
0 0 0
1 50 35
2 90 65
3 115 78
4 135 88
5 153 95
6 168 99
e. How will Alex allocate her income between football and concert tickets? Explain how you arrived at your answer.
f.Is the condition from part (b) strictly satisfied in this case? Why or why not?
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