Answer to Question #126146 in Macroeconomics for Amjad

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

After the pizzeria announces a special, the optimal consumption of pizza will increase, and consumption of cola will decrease. So, the budget constraint will shift to the right on the pizza axis and to the left on the cola axis