Question

Question: Assume you have received a $50 app store gift card from your friend. You are
considering buying video games and songs for your smartphone. The price of a game is $5 and
that of a song is $1. You can either spend the whole amount on games, in which case the games
purchased would be 10 [= $50/5). Or you can spend the whole amount on music, in which case
the number of songs purchased would 50. Plot your budget line.
Now suppose, the amount of gift card increases to $75 during Christmas days, what will be the
effect on budget line and indifference curve. Also derive ICC.​

Answer 1

Explanation:

Question: Assume you have received a $50 app store gift card from your friend. You are

considering buying video games and songs for your smartphone. The price of a game is $5 and

that of a song is $1. You can either spend the whole amount on games, in which case the games

purchased would be 10 [= $50/5). Or you can spend the whole amount on music, in which case

the number of songs purchased would 50. Plot your budget line.

Now suppose, the amount of gift card increases to $75 during Christmas days, what will be the

effect on budget line and indifference curve. Also derive ICC