-Kristen has an income of $450 per year to spend on music CDs and movies on DVDs. The price of a CD is $15. The indifference curves in the figure above (I₁, I₂, and I₃) reflect Kristen's preferences. If the price of a DVD is $22.50, then Kristen buys ________ DVDs; if the price of a DVD is $18.00, then Kristen buys ________ DVDs.

Question

-Kristen has an income of $450 per year to spend on music CDs and movies on DVDs. The price of a CD is $15. The indifference curves in the figure above (I<sub>1</sub>, I<sub>2</sub>, and I<sub>3</sub>) reflect Kristen's preferences. If the price of a DVD is $22.50, then Kristen buys ________ DVDs; if the price of a DVD is $18.00, then Kristen buys ________ DVDs. A) 12; 14 B) 5; 10 C) 10; 15 D) 7.5; 12.5

Quizplus · Accepted Answer

Kristen's budget constraint is $450. When DVDs cost $22.50, she can buy 20 CDs (450/15) or 20 DVDs (450/22.5). When DVDs cost $18, she can buy 25 DVDs (450/18). The optimal choice is where the budget line is tangent to the highest indifference curve. Given the options, 10 DVDs at $22.50 and 15 DVDs at $18 are feasible and likely optimal choices.

-Kristen Has an Income of $450 Per Year to Spend