Question

As a college student you work at a part-time job, but your parents also send you a monthly “allowance.” Suppose one month your parents forgot to send the check. Show graphically how your budget constraint is affected. Assuming you only buy normal goods, what would happen to your purchases of goods?

Short answer

When my parents forget to send me a check as a college student, my income drops for the period, and my financial limitation shifts to the left. My basket of goods will be reduced in size.

Step-by-step solution

Step 1:Definition

Consumer choices:

People's choices about products and services are referred to as consumer choices. When we study consumer choice behavior, we examine how consumers make long-term decisions about what to buy or consume.

Step 2:Explanation

This is an income effect that is negative.

From the graph, Your monthly income is lower than usual as a result of your parents' cheque not arriving, and your budget constraint shifts back toward the source. If you simply buy everyday items, a decrease in your income means you'll buy fewer of them.

Step 3:Conclusion

Therefore, my income reduces for the period when my parents neglect to give me a check as a college student, and my financial limitation swings to the left.