Question

john 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

Assume pizza is represented by p while cola is represented by c then;

Original budget constraint; p+2c=M

New budget constraint; 2p+2c=M

With the new constraint, Ali has more purchasing power compared with the original budget constraint.