Figure 21-3

-Refer to Figure 21-3.In graph (a),what is the price of good Y relative to good X (i.e.,PY/PX)
A)1/4
B)1/3
C)3/4
D)3/1

Question

Figure 21-3
 
-Refer to Figure 21-3.In graph (a),what is the price of good Y relative to good X (i.e.,PY/PX)
A)1/4 
B)1/3 
C)3/4 
D)3/1

Quizplus · Accepted Answer

Looking at the slope of the budget line, it is -3/4, meaning that for every 1 unit increase in good X, 3/4 unit decrease in good Y is required to maintain the same level of utility. Therefore, the price ratio is PY/PX = 3/4. To maximize utility, the consumer would choose a bundle that lies on the highest possible indifference curve that is tangent to the budget line. In this case, point A is the best choice, as it provides the highest level of utility that can be achieved given the prices and income of the consumer.

Figure 21-3 -Refer to Figure 21-3.In Graph (A),what Is the Price of Is