Figure: The Optimal Consumption Bundle (Figure: The Optimal Consumption Bundle) Look at the figure The Optimal Consumption Bundle.In the figure, which of the following could lead to an optimal consumption bundle on indifference curve I3?
A)a decrease in income
B)a decrease in the price of restaurant meals
C)an increase in the price of rooms
D)an increase in the price of restaurant meals

Question

Figure: The Optimal Consumption Bundle  (Figure: The Optimal Consumption Bundle) Look at the figure The Optimal Consumption Bundle.In the figure, which of the following could lead to an optimal consumption bundle on indifference curve I3?
A)a decrease in income 
B)a decrease in the price of restaurant meals 
C)an increase in the price of rooms 
D)an increase in the price of restaurant meals

Quizplus · Accepted Answer

An optimal consumption bundle is achieved when the consumer is on the highest possible indifference curve given their budget constraint. In this case, indifference curve I3 represents a higher level of utility than indifference curves I1 and I2. A decrease in income or an increase in the price of rooms would shift the budget constraint inward, making it more difficult for the consumer to reach indifference curve I3. An increase in the price of restaurant meals would also lead to a less optimal consumption bundle. However, a decrease in the price of restaurant meals would allow the consumer to purchase more of them for the same amount of income, leading to a higher level of utility and a more optimal consumption bundle on indifference curve I3. Therefore, the correct answer is B.

Figure: the Optimal Consumption Bundle (Figure: the Optimal Consumption