Q14.    A consumer spends all of his income on compact disks (CDs)  and all other goods Y. CDs cost $20 per unit, and the consumer's  income is $300.

        (a) Draw the consumer's budget constraint, and show the optimum of a consumer who buys a positive amount of Y and CDs.

        (b) Now assume that a CD company offers him the following deal: For a membership of $100, he can buy all the CDs he wants for $10 each. Draw the new budget constraint under this offer.

        (c) Under the offer, show that anyone buying more than 10 CDs before the plan is introduced will join the plan, but anyone buying less than 10 CDs, may or may not join the plan.

        (d) Show on an indifference curve diagram that if an individual is indifferent between joining the plan and not becoming a member, then he or she would spend more money and purchase more CDs under the plan.