Suppose a consumer must pay $P per visit to the local museum for each of the first 10 visits but only $P/2 per visit from the 11^th visit on.With a composite consumption good on the Y-axis and visits to the museum on the X-axis,the budget line: A)is vertical after 10 visits. B)becomes steeper after 10 visits. C)becomes flatter after 10 visits. D)shifts outward after 10 visits.

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Quizplus · Accepted Answer

The budget line before 10 visits is given by: Pq=Y where P is the price per visit and q is the number of visits. After 10 visits, the budget line becomes: (10P+(q-10)P/2)=Y. Simplifying it, we get q-20=2(Y/P)-20 or q=2(Y/P). Since this is a linear budget line, it passes through the origin, so the slope is given by P. Before 10 visits, the slope is P, but after 10 visits, the slope is P/2. A lower slope represents a flatter budget line, so the correct answer is C. In other words, as the consumer takes more visits to the museum, the budget line becomes less steep, making it easier for the consumer to afford the visits.

Suppose a Consumer Must Pay $P Per Visit to the Local