Question

In: Economics

Initially, a consumer spends her entire income on 100 units of x and 60 units of...

Initially, a consumer spends her entire income on 100 units of x and 60 units of y, both normal goods. Now suppose the price of x increases by $6. If at the same time the price of y decreases by $10, the consumer would

  1. still consume (x, y) = (100, 60).
  2. be better off than before.
  3. consume more of both goods.
  4. consume less of both goods.

Solutions

Expert Solution

Answer :

OPTION B: be better off than before.

Reason: Although th eration of consumption of normal goods is 100:60 or 5:3, but due to change in price, the consumer is better off by $4 overall (increase of $6 in price of Good X and decrease of $10 in price of good Y)

The consumer will be able to buy more of the normal goods as per his needs because he is now better off than before.

Rahul Sunny answered 2 years ago
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