A consumer is currently spending all of her available income on two goods: music CDs and DVDs. At her current consumption bundle she is spending twice as much on CDs as she is on DVDs. If the consumer has $120 of income and is consuming 10 CDs and 2 DVDs, what is the price of a CD? A) $4
B) $8
C) $12
D) $20

D) $20

Explanation:

Calculation for the price of a CD

Since the Total income is 120 then let the Income spent on DVDs be x and let them income spent on CDs be 2*x

First step

x + 2*x = $120

3*x = $120

x=$120/3

x = $40

Second step

Let the Price of one CD be y

Hence,

2*y = $40

y = $40 / 2

y = $20

Therefore the price of a CD will be $20

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