Question

3. Consider a consumer with $10 to spend on these two goods where the price of apples is always $2 each. (2 points)

Apples		Oranges
Q	U	Q	U
1	50	1	30
2	75	2	56
3	85	3	78
4	90	4	96
5	92	5	108
6	93	6	116

a) Find the utility maximizing combination of apples and oranges if oranges cost $4 each. Explain why the consumer didn’t choose the bundle of 3 apples and 4 oranges.

b) Repeat all of part (a) if oranges cost $1 each.

Answer 1

A) if price of Apple = $2, price of orange =$4 and consumer have $10 to spend then, consumer will purchase 3 units of apples and 1 units of orange to maximise their utility. The consumer did not choose the bundle of 3 Apples and 4 oranges because these bundles are not affordable for consumer because consumer have only $10 to spend and cost of these bundle = 2*3 + 4*4= $22. B) if price of apples =$2 and price of oranges=$1 then utility maximising bundle is 2 units of apples and 6 units of oranges. Consumer didn't choose the bundle of 3 apples and and 4 oranges because they are not optimal bundle.