Syracuse University
M = Pb*Qb + Pp*Qp
M = Pb*(3*Qp) + Pp*Qp
M = (3*Pb + Pp)*Qp
Qp = M/(3*Pb + Pp)
Qb = 3*Qp = 3M/(3*Pb + Pp)
When M=$24, Pb=$1 and Pp=$3, Qp will be 4 and Qb will be 12. As a check, the total cost of that bundle will be: $3*4 + $1*12 = $24. The diagram showing her equilibrium looks as follows:
Qp = $24/(3*$1 + $5) = $24/$8 = 3
Qb = 3*$24/(3*$1 + $5) = $72/$8 = 9
The corresponding graph is shown below:
Because she regards the goods as perfect complements, returning her to her original indifference curve requires that she be returned to her original consumption bundle. The substitution effect is, therefore, zero since her original and compensated consumption of pizza is exactly the same. The income effect is thus -1 pizzas.
CV = $5*4 + $1*12 - $24 = $32 - $24 = $8
The revenue raised by the policy will be $2*3 = $6.