Use the following to answer questions: Figure: Coffee and Comic Books
-(Figure: Coffee and Comic Books) Refer to the figure. A consumer has $5 to spend on comic books (priced at $1 per comic book) and coffee (priced at $1 per cup). Using the figure, how many comic books and cups of coffee will this consumer purchase?
A) three comic books and two cups of coffee
B) two comic books and three cups of coffee
C) 2.5 comic books and 2.5 cups of coffee
D) one comic book and four cups of coffee

Question

Use the following to answer questions: Figure: Coffee and Comic Books 
-(Figure: Coffee and Comic Books) Refer to the figure. A consumer has $5 to spend on comic books (priced at $1 per comic book) and coffee (priced at $1 per cup). Using the figure, how many comic books and cups of coffee will this consumer purchase?
A) three comic books and two cups of coffee 
B) two comic books and three cups of coffee 
C) 2.5 comic books and 2.5 cups of coffee 
D) one comic book and four cups of coffee

Quizplus · Accepted Answer

The consumer can spend $5 on either comic books or coffee or on a combination of both. The budget line (represented by the diagonal line in the figure) shows all the possible combinations of comic books and cups of coffee that the consumer can purchase with $5. The slope of this line is -1 (meaning that the consumer can buy one less comic book for each extra cup of coffee they buy) since the price of both comic books and coffee is $1. The point where the budget line intersects with the comic book axis represents the maximum number of comic books the consumer can buy with $5 (which is 5). Similarly, the point where the budget line intersects with the coffee axis represents the maximum number of cups of coffee the consumer can buy with $5 (which is also 5). The optimal choice for the consumer is to choose the point where the budget line intersects with the highest possible indifference curve (which represents the consumer's highest level of satisfaction). In the figure, the highest indifference curve that the budget line intersects is the one that passes through the point where the budget line intersects with the coffee axis and the point where the budget line intersects with the comic book axis. Therefore, the consumer will buy two comic books and three cups of coffee.

Use the Following to Answer Questions: Figure: Coffee and Comic