(Figure: The Optimal Consumption Bundle) Use Figure The Optimal Consumption Bundle.Which of the following could lead to an optimal consumption bundle on indifference curve I₃?

A) a decrease in income
B) an increase in the price of restaurant meals
C) a decrease in the price of rooms
D) an increase in the price of rooms

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Lincoln Riley · Accepted Answer

Final Answer : C, Explanation :  A decrease in the price of rooms (assuming restaurant meals remain constant) would make the budget line rotate outward and become less steep, which would allow the consumer to consume more of both goods while remaining on the same indifference curve. This would lead to an optimal consumption bundle on the indifference curve I 3 . A decrease in income or an increase in the price of restaurant meals would shift the budget line inward, making the consumer worse off. An increase in the price of rooms would make the budget line steeper and rotate inward, making the consumer unable to afford the previous consumption bundle and leading to a lower utility level.

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