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 point of highest utility is where the budget line is tangent to the highest possible indifference curve. In this case, that occurs at point E where the budget line intersects the indifference curve labeled IC2. At this point, the consumer is consuming 21 units of Y and 7 units of X. Since the price of Y is $1 per unit, the consumer is spending $21 on Y. If the price of X is $3 per unit, the consumer is spending $21 on Y and $21 on X, which is equal to the total budget of $42. Therefore, the consumer would maximize utility by consuming 21 units of Y.

Use the Indifference Curves and the Budget Lines in Figure