Margo spends $108 a year on music CDs and movies on DVDs. Initially the price of a music CD is $18 and the price of a movie on DVD is $18. Then record companies, faced with the growing competitions from digital music download services, lower the price of a music CD to $13.50.
a) Draw graphs showing Margo's consumption possibilities before and after the price of a CD fell.
b) How has the relative price of a CD changed? If Margo bought 4 CDs per year, how many DVDs could she buy before and after the price of a CD fell?

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The Answer of Margo spends $108 a year on music CDs and movies on DVDs. Initially the price of a music CD is $18 and the price of a movie on DVD is $18. Then record companies, faced with the growing competitions from digital music download services, lower the price of a music CD to $13.50.
a) Draw graphs showing Margo's consumption possibilities before and after the price of a CD fell.
b) How has the relative price of a CD changed? If Margo bought 4 CDs per year, how many DVDs could she buy before and after the price of a CD fell?

Margo Spends $108 a Year on Music CDs and Movies