The following figure displays the consumer choice for Mona, an individual decidi

Question

The following figure displays the consumer choice for Mona, an individual deciding how she will spend her money on M&M;'s and Skittles. Use the figure to answer questions 12 to 14 Assume Mona has $20 to spend on candy. At this moment, the price of Skittles is $2 and the price of M&M;'s is $2. Based on this information, Mona will choose to purchase consumption bundle: A B C D Not enough information provided to determine which of the following is true of consumption bundles A, C, and D: They are all preferred to bundle B They all cost the same amount of money They all provide Mona with the same level of utility Like all consumption bundles, they are made up of material goods and will not bring Mona any true happiness According to the information depicted in the picture, which of the following events would cause Mona to switch from consumption bundle A to consumption bundle B? (this is not related to the information in question 12). A decrease in the price of M&M;'s An increase in the price of M&M;'s An increase in income A decrease in income

Explanation / Answer

P(s)=2 P(m)=2

Budget constraint P(s)*S + P(m)*M = 20 so S+M=10

12. Now Bundle B, c and D all have S+M=10 but indifference cirve meets budget constraint at B so Mona will go for B

13 As they all lie on a same indiffirence curve so A,C and D provide Mona with same level of utility.

14.Total cost of bundle A = 3*2+4*2 = 14

Total cost of bundle B = 5*2+5*2 = 20

So an increase in income will make Mona shift from bundle A to B

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