Refer to the following indifference map for a consumer who has an income of $48 to spend on goods X and Y and the market prices of X and Y are both equal to $4:

-Now suppose the price of good X increases to $12 while the price of good Y remains $4. Utility will be maximized on which indifference curve?
A) I
B) II
C) III
D) On an indifference curve below I

Question

Refer to the following indifference map for a consumer who has an income of $48 to spend on goods X and Y and the market prices of X and Y are both equal to $4:
 
-Now suppose the price of good X increases to $12 while the price of good Y remains $4. Utility will be maximized on which indifference curve?
A) I 
B) II 
C) III 
D) On an indifference curve below I

Quizplus · Accepted Answer

When the price of good X increases to $12, the consumer will likely decrease consumption of good X and increase consumption of good Y to maintain their level of utility. This will lead to a movement down along indifference curve II, which has a lower level of total utility but is still preferred over indifference curve I since it represents a combination that is still affordable given the consumer's income and new price ratio. Therefore, utility will be maximized on indifference curve II.

Refer to the Following Indifference Map for a Consumer Who