Quantity of Y Quantity of Y Quantity of X Figure A Quantity of X Figure B...

Question

Question

Quantity of Y Quantity of Y Quantity of X Figure A Quantity of X Figure B Quantity of Y Quantity of Y Quantity of X Figure C

CDs (number per year) 5 10 15 20 25 DVDs (number per year) 18) Kristen has an income of $450 per year to spend on music CDs a

Answer 1

Answer #1

(17) (A)

Indifference curves for perfect substitutes are downward sloping straight lines.

(18) (A)

Budget line: 450 = 15C + 22.5D

60 = 2C + 3D [dividing by 7.5]

When C = 0, D = 60/3 = 20 (horizontal intercept) and when D = 0, C = 60/2 = 30 (vertical intercept).

In following graph, AB is the budget line which is tangent to I1 at point X, with optimal bundle being (C0, D0) = (15, 10).

30 18 CO X 12 13 12 6 DO B 25 5 10 15 20 DVDS (number per year) CDs (number per year) 24

Answer 2

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