Question

In: Economics

Suppose a consumer spends all her income on goods X and Y. Suppose the price of...

Suppose a consumer spends all her income on goods X and Y. Suppose the price of good X increases, and the consumer's income decreases. Which of the following must be true?

The amounts of both good X and good Y that the consumer can purchase decrease.

The amount of good Y that the consumer can purchase decreases.

The amount of good X that the consumer can purchase decreases.

The amount of good X that the consumer can purchase decreases, and the amount of good Y that the consumer can purchase increases.

Solutions

Expert Solution

The amount of both good X and good Y that the consumer can purchase will decrease.

Consumer income level is an important constraint for the consumption of goods and services. Here the income of consumer falls down; at the same time, the price of one good was increased. The fall in income will reduce the purchasing level of the consumer. The fall in demand for good X will be greater than the fall in demand for good Y. The consumer will prefer good Y than good X, because of its price. At lower level of income consumer will prefer low price goods to meet his or her needs.

Rahul Sunny answered 2 years ago
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