Graph 22-9

-Refer to Graph 22-9. Assume that the consumer depicted in the graph has an income of $50 and currently optimises at pointA. When the price of marshmallows decreases to $2.50, the optimising consumer will choose to purchase how many units of marshmallows?
A) 4
B) 8
C) 16
D) 24

Question

Graph 22-9
 
-Refer to Graph 22-9. Assume that the consumer depicted in the graph has an income of $50 and currently optimises at pointA. When the price of marshmallows decreases to $2.50, the optimising consumer will choose to purchase how many units of marshmallows?
A) 4 
B) 8 
C) 16 
D) 24

Quizplus · Accepted Answer

At point A, the consumer purchases 8 units of marshmallows at a price of $3.00, which is the amount that maximizes their utility given their budget constraint. 
When the price decreases to $2.50, the consumer's budget constraint shifts outward, allowing them to purchase more marshmallows. 
The new budget line passes through point A and has a slope of -2.50/3.00 = -5/6. 
The intersection of this budget line with the marshmallow indifference curve occurs at approximately 12 units of marshmallows. However, the consumer is constrained by their budget, which only allows them to purchase up to 10 units of marshmallows at the new price of $2.50. Therefore, the optimising consumer will choose to purchase 10 units of marshmallows.

Graph 22-9 -Refer to Graph 22-9. Assume That the Consumer Depicted in the Consumer