Figure 8.6

Manuri has $300 to spend on Pilates classes and Yoga classes. The price of a group Pilates class is $20 and the price of a group Yoga class is $10. Manuri's optimal bundle is given by "A" in Figure 8.6.
-Refer to Figure 8.6.Suppose the price of Pilates sessions rises to $30 while income and the price of Yoga sessions remain unchanged.What is her new optimal bundle?

Question

Figure 8.6
  
Manuri has $300 to spend on Pilates classes and Yoga classes. The price of a group Pilates class is $20 and the price of a group Yoga class is $10. Manuri's optimal bundle is given by "A" in Figure 8.6.
-Refer to Figure 8.6.Suppose the price of Pilates sessions rises to $30 while income and the price of Yoga sessions remain unchanged.What is her new optimal bundle?

Quizplus · Accepted Answer

With the increase in the price of Pilates sessions, Manuri's budget constraint will shift inward, reducing her purchasing power. As a result, she will choose a new optimal bundle that lies on the new budget constraint. In this case, the new optimal bundle is C, which is a combination of fewer Pilates classes and more Yoga classes than her original optimal bundle A. This is because the increase in the price of Pilates classes makes them relatively more expensive than Yoga classes, causing Manuri to substitute towards Yoga classes.

Figure 8.6 Manuri Has $300 to Spend on Pilates Classes and Yoga