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 $100 and currently optimizes at bundle A. When the price of marshmallows decreases to $5, which bundle will the optimizing consumer choose?
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 $100 and currently optimizes at bundle A. When the price of marshmallows decreases to $5, which bundle will the optimizing consumer choose?
A)A 
B)B 
C)C

Quizplus · Accepted Answer

When the price of marshmallows decreases to $5, the budget line shifts outward (to the right), becoming flatter. The new optimal bundle will be at the tangency point between the new budget line and the highest indifference curve. This point is bundle B, which has more marshmallows and fewer cookies than bundle A, but still lies on the same indifference curve as A. Therefore, the consumer will choose bundle B as the new optimal bundle.

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