Suppose a consumer buy books and DVDs.The price of a book is $10,the price of a DVD is $20 and the consumer's income is $400.If books are measured on the vertical axis and DVDs are measured on the horizontal axis,then the budget line intersects the vertical axis at:
A) 40.
B) 20.
C) 10.
D) 400.

Question

Quizplus · Accepted Answer

The budget line can be represented by the equation:

10B + 20D = 400

where B is the quantity of books and D is the quantity of DVDs that the consumer can buy.

To find where the budget line intersects the vertical axis (when D = 0), we can just solve this equation for B:

10B + 20(0) = 400

10B = 400

B = 40

Therefore, the budget line intersects the vertical axis at 40, which means that if the consumer only wants to buy books, they can buy up to 40 books (or spend $400 on books).

As for the best choice(s), it depends on the consumer's preferences and the prices of the books and DVDs. If the consumer values books more than DVDs, they will likely choose to buy more books than DVDs, and vice versa. The optimal combination of books and DVDs can be found at the point where the budget line intersects the highest possible indifference curve (representing the consumer's preferences), which varies depending on the individual.

Suppose a Consumer Buy Books and DVDs