Use the indifference curves and the budget lines in Figure 19.3 to answer the indicated question.Assume the price of Y is $1 per unit.If the price per unit of good X is $3,the consumer would maximize utility by consuming
A)30 units of Y.
B)21 units of Y.
C)10 units of Y.
D)25 units of Y.

Question

Use the indifference curves and the budget lines in Figure 19.3 to answer the indicated question.Assume the price of Y is $1 per unit.If the price per unit of good X is $3,the consumer would maximize utility by consuming 
A)30 units of Y. 
B)21 units of Y. 
C)10 units of Y. 
D)25 units of Y.

Quizplus · Accepted Answer

The optimal consumption point is where the budget line is tangent to the highest possible indifference curve. In this case, that point is where the budget line intersects the indifference curve labeled IC2. At this point, the consumer is consuming 7 units of X and 21 units of Y. Since the price of Y is $1 per unit, the $30 budget can purchase a maximum of 30 units of Y. At a price of $3 per unit for X, the consumer can afford 10 units of X (which would cost $30). Therefore, the optimal consumption point is consuming 7 units of X and 21 units of Y, or point A on the graph.

Use the Indifference Curves and the Budget Lines in Figure