Figure 10-9

-Refer to Figure 10-9.If the consumer has $240 to spend on DVDs and CDs, what is the price of a DVD if the budget constraint is BC₁?

Question

Figure 10-9
 
-Refer to Figure 10-9.If the consumer has $240 to spend on DVDs and CDs, what is the price of a DVD if the budget constraint is BC₁?

Quizplus · Accepted Answer

The budget constraint BC₁ intersects the DVD axis at $20. This means that the consumer can only buy DVDs or a combination of DVDs and CDs that will cost no more than $240. Therefore, the price of a DVD is $20. To find the optimal choice, you need to look for the point where the highest reachable indifference curve intersects the budget constraint. This point is labeled as point A, where the consumer buys 8 DVDs and no CDs. Therefore, the optimal choice is to buy 8 DVDs at $20 each for a total cost of $160.

Figure 10-9 -Refer to Figure 10-9.If the Consumer Has $240 to Spend