Anne has a job that requires her to travel three out of every four weeks. She ha

Question

Anne has a job that requires her to travel three out of every four weeks. She has an annual travel budget and can travel either by train or by plane. The airline on which she typically flies das a frequent-travel program that reduces the cose of her tickets according to the number of miles she has flown in a given year. When she reaches 25,000 miles, the airline will reduce the price of her tickects by 25 percent for the remainder of the year. when she reaches 50,000 miles, the airline will reduce the price by 50 percent for the remainder of ther year. Graph Anne's budget line with train miles on the vertical axis and plan miles on the horizontal axis

Explanation / Answer

Ans: The typical budget line is linear (with a constant slope) because the prices of the two goods do not change as the consumer buys more or less of a particular good. In this case, the price of airline miles will change depending on how many miles she purchases. As the price changes, the slope of the budget line will change. Since there are three prices, there will be three slopes, or two kinks, to the budget line. Since the price falls as she flies more miles, the budget line will become flatter with every price change. See the graph in the problem below.

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