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chief333 chief333
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2 weeks ago
The Substitution Effect

Twila purchases 6 bottles of lotion and 4 movies when the price of a bottle of lotion is $1 and the price of a movie is $16. When the price of a bottle of lotion falls, she purchases 8 bottles of lotion and 4 movies with the same budget. How much is the new price of lotion? Please round your final answer to two decimal places.

▸ $0.25

▸ $0.50

▸ $1.00

▸ $0.75
Textbook 

Macroeconomics


Edition: 3rd
Authors:
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relisabethrelisabeth
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2 weeks ago
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$0.75

Twila's budget is the Number of bottles of lotion*PriceLotion + Number of movies*PriceMovies
Budget = 6*1 + 4*16 = $70.00

After the price of lotion falls, Twila now buys 8 bottles of lotion and 4 movies at the same budget.
Budget = New number of bottles of lotion*NewPriceLotion + Number of movies*PriceMovies
70.00 = 8*NewPriceLotion + 4*16 = 8*NewPriceLotion + 64
70.00 - 64 = 6 = 8*NewPriceLotion
6/8 = NewPriceLotion = $0.75
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