Macroeconomics

Macroeconomics

Choice in a world of scarcity – cruise budget constraint

Stephanie is planning a cruise to the Caribbeans and has a budget for new evening wear of $500. She plans to purchase new shoes and dresses. The average price for a pair of shoes is $50 while the average price for an evening dress is $100. Her current budget constraint is pictured in the graph. Stephanie catches an end of season sale on dresses and the average price of dresses falls to $50. As a result:

(which is the best answer choice)

A. The opportunity cost of each individual dress increases as a result of the price reduction.

B. Stephanie’s new budget constraint will be flatter.

C. Stephanie will be able to afford more dresses for a given number of shoes.

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