Susan Has $10 to Spend on Soda and Candy Bars

question 16

Essay

Susan has $10 to spend on soda and candy bars. Soda costs $1 per bottle and candy bars cost $.50 each. Using the grid below: (Appendix) (a) Draw Susan's budget constraint.
(b) Draw a new budget constraint if the price of soda stays at $1 per bottle but the price of candy bars rises to $1 each.
(c) Draw a new budget constraint with the prices at their original levels (soda costs $1 per bottle and candy bars cost $.50 each) but now suppose that on her way to the store to make her purchase Susan loses $5 (she now has only $5 to spend).

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Definitions:

Tax

Mandatory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization.

Tax Cuts

Reductions in the amount of taxes that individuals or corporations are required to pay to the government.

Tax Revenue

The monetary gains that are acquired by governments from taxation.

Arthur Laffer

Arthur Laffer is an economist known for the Laffer Curve, which posits that there is an optimal tax rate that maximizes revenue without discouraging economic activity.