Question

In: Economics

Please show work. A student spends all of her income on pizza and books. When pizzas...

Please show work.

A student spends all of her income on pizza and books. When pizzas cost $3 each and books cost $10 each, she consumed 30 pizzas and 3 books per month. The price of pizzas fell to $2.90 each while the price of books rose to $11 each. The price change

a. made her worse off.

b. left her exactly as well off as before.

c. left her at least as well off as before and possibly helped her.

d. might have helped her, might have harmed her. We can’t tell which unless we observe what she consumed after the price change.

e. had the same effect as a $3 increase in her income.

Solutions

Expert Solution

Answer : Consumpation of student is 30 pizzas and 3 books per month

Price of pizza = $3

Price of Books = $10

Total expenditure = Number of pizza consumed * Price of pizza + Number of books consumed * Price of the book

Total expenditure = 30*$3 +3*$10 = $90+$30 = $120

After price change

Price of the pizza =$2.90

Price of the books = $11

Total expenditure = Number of pizza consumed * Price of pizza + Number of books consumed * Price of the book

Total expenditure = 30*$2.90 +3*$11

Total expenditure = $87+$33 = $120

This shows that price change left her exactly as well as before . As consumpation has not been changed. The money left after buying pizza with new price is $3 has been utilised for the purchase of the books . So total expenditure remains exactly same as before. As neither consumpation decreases nor expenditure increases. This result in consumer remain in same position.Option B is correct.

Rahul Sunny answered 1 year ago
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