You have a budget of $2000 for the year to cover your books and social outings. Books cost (on average) $80 each and social outings cost (on average) $20 each. Let b denote the number of books purchased per year and s denote the number of social outings in a year. (a) What is the equation of your budget constraint? (b) Graph the budget constraint. (It does not matter which variable you put on which axis.) (c) Find the vertical and horizontal intercepts, and give a financial interpretation for each. 3

Chapter 1: Principles of Economics What is economics Economics is the study of how society manages its scarce resources. How do we use graphs in economics We graphs to illustrate the relationship between variables. The following illustrates the negative relationship between price and quantity. As the price decreases the quantity increases – this is a negative relationship...