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April 24, 2014

Homework Help: economics-Budget Constraint & Utility

Posted by Victor on Monday, October 26, 2009 at 9:16pm.

Sally is a frequent flyer whose fares are reduced through coupon offerings. She receives a 20% reduction on fares after she flies 20,000 miles, and 40% reduction after she flies 40,000 miles.
a) Illustrate her budget constraint.
b) Illustrate how her level of utility will change given these frequent-flyer coupons.

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I am very confused by this question. Here we are asked to find the budget constraint, but I am not even sure what the two goods are...what are the goods that should be plotted on the vertical and horizontal axes? Will the budget line be a straight line? How would the coupons change the budget line?

Can someone please help me?
Thank you very much!

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