Figure 21-7
-Refer to Figure 21-7. Suppose the price of a book is $15, the price of a DVD is $10, the value of A is 5, and the value of B is 7.5. How much income does the consumer have?
A)$150
B)$100
C)$75
D)$37.50

Question

Figure 21-7 
-Refer to Figure 21-7. Suppose the price of a book is $15, the price of a DVD is $10, the value of A is 5, and the value of B is 7.5. How much income does the consumer have?
A)$150 
B)$100 
C)$75 
D)$37.50

Quizplus · Accepted Answer

The formula for the budget constraint line is: 
$P_A	imes A + P_B	imes B = Income$

Plugging in the given values, we get: 
$15A + 10B = Income$

Substituting A=5 and B=7.5, we get: 
$15	imes5 + 10	imes7.5 = Income$
$75 + 75 = Income$
$Income = $150

So the consumer has a total income of $150.

To determine the best choice, we need to look at the highest attainable indifference curve that is still within the budget constraint. Looking at the graph, we see that the highest indifference curve that intersects the budget constraint is IC2. It intersects the budget constraint at point C, where the consumer buys 5 books and 5 DVDs.

Thus, the best choice is to buy 5 books and 5 DVDs.

Figure 21-7 -Refer to Figure 21-7. Suppose the Price of a Book