AP_Krugman_Textbook

Kyle, MUB/MUG=5, if PB/PG=2, he should consume

fewer games and more books to lower his MUB/MUG

until it is equal to 2.

Tackle the Test:

Multiple-Choice Questions

1. c


2. e


3. a


4. b


5. e

Tackle the Test:

Free-Response Questions

2. a.

0 4 Quantity of DVD rentals

10

Quantity

of songs

b.Kathleen would purchase 10 song downloads and 0 DVD

rentals. We know that Kathleen wants to be on the high-

est indifference curve possible. We also know that there

is no tangency point in this case because the indifference

curve and the budget line are both straight lines with dif-

ferent slopes. Thus, the highest indifference curve that

touches the budget line will touch it on one of the axes.

Since the slope of the budget line is steeper than the

slope of the indifference curve (−2.5 versus −0.5), the

highest indifference curve that can be afforded, given the

budget line, is at the point 10 songs and 0 DVD rentals.

SOLUTIONS TO AP REVIEW QUESTIONS S-49