Deadly Serious, II, studying for his M.B.A., consumes only two goods, Wheaties and pens. Each pen costs $1. Each box of Wheaties costs $2 but has a free pen inside. Pens can be discarded at no cost. If we draw Serious's budget set with pens plotted on the horizontal axis, then his budget set will be bounded by two line segments with slopes
A) zero and -1.
B) zero and-2.
C) zero and -0.5.
D) zero and infinity.
E) zero and +2.

Question

Quizplus · Accepted Answer

The budget set is bounded by two line segments with slopes of zero and -1 because Serious can buy any combination of Wheaties and pens that costs $2 or less. For each box of Wheaties he buys, he gets a free pen. So, if he buys x boxes of Wheaties, he will get x pens for free. He can then buy y additional pens at a cost of $1 each. So, his total expenditure will be 2x + y. This expenditure must be less than or equal to $2. So, the budget set is given by the inequality 2x + y <= 2. This inequality can be rewritten as y <= -2x + 2. This is the equation of a line with a slope of -2 and a y-intercept of 2. So, the budget set is bounded by two line segments with slopes of zero and -1.

Deadly Serious, II, Studying for His M