FIGURE 6-2
-Refer to Figure 6-2.Suppose the price of Y is $1,the consumer's income is $10,and the consumer is currently buying 3 units of good X and 4 units of good Y.If this consumer is maximizing her utility,then the price of X must be
A)$1.
B)$2.
C)$3.
D)$4.
E)Impossible to tell with the given information.

Question

FIGURE 6-2
-Refer to Figure 6-2.Suppose the price of Y is $1,the consumer's income is $10,and the consumer is currently buying 3 units of good X and 4 units of good Y.If this consumer is maximizing her utility,then the price of X must be
A)$1. 
B)$2. 
C)$3. 
D)$4. 
E)Impossible to tell with the given information.

Quizplus · Accepted Answer

To maximize utility, the consumer must be at the point where the budget line is tangent to the highest possible indifference curve. In this case, the current consumer bundle is (3,4) which costs $9. If the price of Y is $1, then the consumer has $1 left to spend on good X. At this price, the consumer can buy 0.5 units of good X (i.e. 1/2). So the slope of the budget constraint is -1/2. To be tangent to the highest possible indifference curve, the slope of the indifference curve at (3,4) must be equal to -1/2. Given the information in the graph, this slope corresponds to the price of good X being $2. Therefore, the answer is B) $2.

FIGURE 6-2 -Refer to Figure 6-2.Suppose the Price of Y Is $1,the