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Suppose Oreos and Hydrox are perfect substitutes, one for one. Oreos currently sell for 50 cents...

  1. Suppose Oreos and Hydrox are perfect substitutes, one for one. Oreos currently sell for 50 cents and Hydrox sell for 75 cents. You have a budget of $30 and your optimal consumption choice is to buy

    24 units of Oreos and 24 units of Hydrox.

    30 units of Oreos and 30 units of Hydrox.

    60 units of Oreos and 0 units of Hydrox.

    0 units of Oreos and 40 units of Hydrox.
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Answer #2

It is given that Oreos and Hydrox are perfect substitutes of each other. Both the goods can be substituted one unit of a good in exchange for one unit of the other good. Since the Oreos are priced less than Hydrox, the consumer will spend all the income on the consumption of Oreos. So, the consumer can spend 30/0.50 = 60 units of Oreos and no unit of Hydrox when all the income is spent on the consumption of Oreos. Therefore, the correct answer is 'Option C'.

answered by: anonymous
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