A consumer is currently spending all of her available income on two goods: music CDs and DVDs. At her current consumption bundle, she is spending twice as much on CDs as she is on DVDs. If the consumer has $120 of income and is consuming 10 CDs and 2 DVDs, what is the price of a CD?

Question

Business

Uriah

8 March, 05:23

A consumer is currently spending all of her available income on two goods: music CDs and DVDs. At her current consumption bundle, she is spending twice as much on CDs as she is on DVDs. If the consumer has $120 of income and is consuming 10 CDs and 2 DVDs, what is the price of a CD?

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Answers (1)

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Steve Hodge · Answer 1

The price of a CD is $8

Explanation:

Let us assume the spending on the DVD be X

So, the spending on the CD be 2X

And, the total spending is $120

So, the equation is

X + 2X = $120

3X = $120

X = $120 : 3

X = $40

So, the spending on the DVD is $40

And, the spending on the CD is $80

Now, we know that

Price * Quantity = Expenditure

Price * 10 = $80

So, the price is $8