Question

Ibrahim subscribes to an Internet provider that charges $2 per hour and price of all the other goods is normalized to $1. He has $100 per month to spend. a) Draw his, budget line for Internet access on the horizontal axis and money spent on all other goods on the vertical axis . ( 2 marks) b) Let us assume that another company offers unlimited Internet access for a flat monthly fee of $20. Draw second budget line with this price for internet and same income.

Answer 1

The student is asked to draw two budget lines representing different pricing schemes for internet services on a graph. The first line slopes downward with a slope of -2, while the second line has a flat segment at $80 due to a flat internet service fee.

Step-by-step explanation:

The student's question requires the creation of two budget constraint lines, representing different internet service pricing schemes, on a graph with internet access on the horizontal axis and money spent on other goods on the vertical axis.

For part a), if the student spends all $100 on internet service at $2 per hour, the maximum would be 50 hours of internet access (100/2=50). This point would be on the horizontal axis. If the student spends nothing on internet, the entire budget would go to other goods, shown at the vertical intercept of $100. Thus, the budget line would connect these two points (0,100) and (50,0), and the slope would be -2, as the decrease in money spent on other goods per additional hour of internet service is $2.

For part b), with a flat fee of $20 for unlimited internet, the budget constraint shifts. The student could choose unlimited internet and have $80 left for other goods (0,80). If no internet service is chosen, the student would still have the entire $100 for other goods (0,100). These points create a new budget line which is flat at $80 from the point (0,80) to where the internet access is unlimited.