Question

Ali optimal choice at pizzeria is one pizza and two colas at given prices and income. The pizzeria announces a special: All pizzas after the first one are half-price. Show the original and new budget constraint. What can you say about the bundle Ali will choose when faced with the new constraint?

Answer 1

Ali optimal choice at pizzeria is one pizza and two colas at given prices and income. The pizzeria announces a special: All pizzas after the first one are half-price. Show the original and new budget constraint. What can you say about the bundle Ali will choose when faced with the new constraint?

Explanation:

Ali optimal choice at pizzeria is one pizza and two colas at given prices and income. The pizzeria announces a special: All pizzas after the first one are half-price. Show the original and new budget constraint. What can you say about the bundle Ali will choose when faced with the new constraint?

After the announcement of the  special by the pizzeria, optimal consumption of pizza will go up, and consumption of cola will go down.Therefore, the budget constraint will shift to the right on the pizza axis and to the left on the cola axis.