Figure 21-20
The following graph illustrates a representative consumer's preferences for marshmallows and chocolate chip cookies:
-Refer to Figure 21-20. Assume that the consumer has an income of $40, the price of a bag of marshmallows is $2, and the price of a bag of chocolate chips is $2. The optimizing consumer will choose to purchase which bundle of marshmallows and chocolate chips?
A)A
B)B
C)C

Question

Figure 21-20
The following graph illustrates a representative consumer's preferences for marshmallows and chocolate chip cookies: 
-Refer to Figure 21-20. Assume that the consumer has an income of $40, the price of a bag of marshmallows is $2, and the price of a bag of chocolate chips is $2. The optimizing consumer will choose to purchase which bundle of marshmallows and chocolate chips?
A)A 
B)B 
C)C

Quizplus · Accepted Answer

The optimizing consumer will choose the bundle that maximizes their utility, subject to their budget constraint. In this case, bundle C provides the highest level of utility (13 utils) within the consumer's budget constraint, since it lies on the highest possible indifference curve that is still within the budget line. Bundles A and B are either on a lower indifference curve or outside of the budget constraint. Bundle D is on a higher indifference curve, but is not affordable with the given prices and income. Therefore, the best choice is bundle C.

Figure 21-20 The Following Graph Illustrates a Representative Consumer's Preferences for Marshmallows