The Table Below Represents Sue’s Preferences For Bottled Water And Soft Drinks, The Combination Of Which Yields The

The table below represents Sue’s preferences for bottled water and soft drinks, the combination of which yields the same level of utility.
table[[table[[Combination of],[Bottled Water],[and Soft Drinks]],table[[Bottled],[Water],[per month]],table[[Soft],[Drinks],[per month]],table[[Marginal Rate of],[Substitution of Soft Drinks],[for Bottled Water]]],[A,5,11,],[B,10,7,0.80],[C,15,4,0.60],[D,20,2,0.40],[E,25,1,0.20]]
Sue’s monthly budget for bottled water and soft drinks is $20.00. The price of bottled water is $0.80 per bottle, and the price of soft drinks is $2.00 per bottle.
If water is on the horizontal axis and soft drinks are on the vertical axis, the slope of Sue’s budget constraint is (Enter your response rounded to two decimal places and include a minus sign if necessary.)
Given the information on Sue’s budget constraint and her preferences, the combination of goods that satisfies her utility-maximizing problem is

Expert Answer

This solution was written by a subject matter expert. It’s designed to help students like you learn core concepts.



Definition of Budget constraint

Budget constraints show the relationship between the two goods, their prices and the income of the consumer.

Budget constraints are shown as:-


X and Y are quantities of two goods.

Px and Py are their prices.

M is the income of the consumer.


An introduction has been provided


Budget Constraint Calculation:

Price of bottled water (Pw​):$0.80

Price of soft drink (Ps​):$2.00

Monthly budget: $20

Budget Constraint Equation:

0.8W 2S=20

where W represents bottled water and S represents soft drinks.

Slope Calculation:

The slope of the budget line is calculated as SW​ when the budget line intersects the axes.

When W=0,S=10 (all budget spent on soft drinks).

When S=0,W=25 (all budget spent on water).

Hence, the slope SW=1025=0.4

Since the budget line is downward sloping, the slope is negative. Therefore, the slope is −0.4.

Optimal Bundle Calculation:

At the optimal bundle, the absolute value of the slope is equal to the MRS.

From the given table:

The MRS of 0.4 corresponds to combination D.


The combination that satisfies Sue’s utility-maximizing problem, given her budget constraint and preferences, is combination D.

The slope is -0.4

Hence, The combination that satisfies utility maximization problem is D