Question

Yixuan is hanging out at Sylvia Park with her friends. She has $40 to spend and can choose between two goods: bubble tea and lollies. Bubble tea costs $8 per glass while lollies are $4 per bag. Which of the following statements is INCORRECT?

a) With bubble tea on the Y-axis, the absolute slope of Yixuan's budget constraint is one-half. She can exchange 1 bubble tea for 2 bags of lollies or 1 bag of lollies for half a glass of bubble tea.
b) A possible utility maximizing consumption bundle for Yixuan consists of 3 glasses of bubble tea and 5 bags of lollies.
c) Yixuan can buy zero glasses of bubble tea and 10 bags of lollies.
d) Yixuan can buy 5 glasses of bubble tea and zero bags of lollies.

Answer 1

The incorrect statement is b) A possible utility maximizing consumption bundle for Yixuan consists of 3 glasses of bubble tea and 5 bags of lollies because the total cost would exceed her budget of $40.

Step-by-step explanation:

The student is asking about budget constraints and utility maximization in the context of consumer choice theory, which is a topic in economics. Yixuan has a total of $40 to spend on two goods: bubble tea, which costs $8 per glass, and lollies, which are $4 per bag. When plotting these choices on a graph with bubble tea on the Y-axis and lollies on the X-axis, the absolute slope of the budget constraint represents the rate at which Yixuan can trade one good for another within her budget.

The incorrect statement is: b) A possible utility maximizing consumption bundle for Yixuan consists of 3 glasses of bubble tea and 5 bags of lollies. This is because 3 glasses of bubble tea at $8 each would cost $24, and 5 bags of lollies at $4 each would cost $20, totaling $44, which exceeds her budget of $40. Statements (a), (c), and (d) are correct as they accurately describe Yixuan's trade-off options and potential purchases within her budget constraint.