Question

PLEASE EXPLAIN

Andy spends $30 a week on movies and magazines. The price of a movie is $8, the price of a magazine is $2, and Andy sees 3 movies a week and buys 3 magazines. The price of a magazine increases to $4 and Andy's brother gives him $6 a week so that he can still see 3 movies a week and buy 3 magazines. In this situation, Andy will see ________ movies a week and buy ________ magazines.

1) 3; 3

2) fewer than 3; fewer than 3

3) fewer than 3; more than 3  

4) more than 3; fewer than 3

Answer 1

Answer: 4. more than 3; fewer than 3

8 movie + 2 magazine = $30

8*3 +2*3 = $30

When the price increases by 2 for magazine

8 movie + 4 magazine = $36

8*3 + 4*3 = $36

Andy receives additional $6 to buy either movie or magazine.

When the price of the magazine increases, its marginal utility decreases, and also it seems to be expensive.

As a result, the demand for movies increases by 1, and the demand for magazine declines by 1.

8*4 + 4*1 = $36

The alternative product for a magazine is movie. So, Andy prefers to consume movie instead of magazine.