Maria has a $300 gift certificate at a spa that she can use on massages or manic

Question

Maria has a $300 gift certificate at a spa that she can use on massages or manicures. A massage costs $100, and a manicure costs $20.

a. Let x = massages. Let y = manicures. The equation for Maria’s budget constraint is:

___ =____ x + ____ y

b. Suppose Maria decides to split her gift certificate with a friend and transfers half of the value of her gift certificate to her friend. The equation for her new budget constraint is:

___ = ____ x +____ y

c. After giving away half of her gift certificate, suppose the price of massages increases by 50 percent before Maria can use her gift certificate. The equation for her new budget constraint is:

___ =___ x + ___ y

Explanation / Answer

a) 100x + 20y = 300

i.e. 300 = 100 x + 20 y

b) 150 = 100 x + 20 y as after giving half gift certificate she left with $ 150 i.e. ($ 300 - $ 150).

c) 150 = 150 x + 20 y

When price of massage increase by 50% then price will be: 100 + 50% of 100 = 100 + 50 = $ 150

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