Use the Indifference Curves and the Budget Lines in Figure

question 73

Multiple Choice

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.In Figure 19.3, given an income of $30 and a price for good Y of $1, which of the following two points represent optimal consumption?

• A)A when the price of X is $3 and C when the price of X is $1.
• B)B when the price of X is $1 and D when the price of X is $3.
• C)A when the price of X is $1 and D when the price of X is $3.
• D)B when the price of X is $1 and C when the price of X is $3.

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Definitions:

Preference Map

A relationship between two variables, X and Y, in which a decrease in X is associated with a decrease in Y, and an increase in X is associated with an increase in Y.

Indifference Curve

a graph showing different combinations of two goods that give a consumer equal satisfaction and utility.

Budget Constraint

The limitations on the consumption choices of an individual or household due to limited financial resources.

MUx/MUy

Represents the marginal utility of good x divided by the marginal utility of good y, often used in consumer choice theory to analyze optimal consumption points.