Figure 10-7

Manuri has $300 to spend on Pilates classes and Yoga classes.The price of a group Pilates class is $20 and the price of a group Yoga class is $10.Manuri's optimal bundle is given by "A" in Figure 10-7.
-Refer to Figure 10-7.Suppose the price of Pilates sessions rises to $30 while income and the price of Yoga sessions remain unchanged.What is her new optimal bundle?

Question

Figure 10-7
  
Manuri has $300 to spend on Pilates classes and Yoga classes.The price of a group Pilates class is $20 and the price of a group Yoga class is $10.Manuri's optimal bundle is given by "A" in Figure 10-7.
-Refer to Figure 10-7.Suppose the price of Pilates sessions rises to $30 while income and the price of Yoga sessions remain unchanged.What is her new optimal bundle?

Quizplus · Accepted Answer

With the price of Pilates sessions now at $30, Manuri's budget constraint line shifts inward and becomes steeper, reducing her ability to purchase both classes. As a result, her new optimal bundle will be at a point where the marginal rate of substitution between Pilates and Yoga is equal to the new ratio of their prices. This means that she will need to purchase more Yoga classes and fewer Pilates classes in order to maximize her satisfaction within her budget constraints. This leads her to choose bundle C as her new optimal bundle.

Figure 10-7 Manuri Has $300 to Spend on Pilates Classes and Yoga