How Will Antonio's Budget Line Shift with the Price Increase in College Textbooks?

What happens to Antonio’s budget line with the price increase in college textbooks?

How does the price increase affect the number of new and used books Antonio can purchase?

Final answer:

Antonio's budget line shifts inward, indicating that he can purchase fewer new books with his budget.

Antonio's budget line is affected when there is a price increase in college textbooks. In this scenario, Antonio buys five new college textbooks at $80 each during his first year at school, while used books cost $50 each. When the bookstore announces a 10 percent increase in the price of new books and a 5 percent increase in the price of used books, Antonio's father offers him an extra $40.

To illustrate the change in Antonio's budget line, we need to plot the original budget line and the new budget line after the price increase. The original budget line represents the combinations of new and used books that Antonio can purchase with his budget. The slope of the original budget line is the ratio of the prices of new books and used books, which is $80/$50 or 8/5.

After the price increase, the new budget line will have a steeper slope. The new slope is calculated based on the new prices of the books: $88 for new books (10% increase) and $52.50 for used books (5% increase). This new slope indicates that Antonio can purchase fewer new books with his budget than before the price increase. Therefore, Antonio's budget line shifts inward, reflecting the impact of the price increase on his purchasing power.