T/F/U: In 2018 you buy a basket of goods (Qx18, Qy18). In 2019 you buy a...

T/F/U: In 2018 you buy a basket of goods (Qx18, Qy18). In 2019 you buy a basket of goods (Qx19, Qy19). Suppose the 2019 basket costs more, at 2018 prices (Px18, Py18), than the basket you actually bought in 2018. If all prices change proportionally then you are better off in 2019. (Hint: write down the actual expenditure in 2018, then the expenditure you would have to pay to buy your 2019 basket at 2018 prices, and draw those as budget lines on a graph).

Solutions

Expert Solution

Answer: True.

It's given that prices have changed proportionately. So, with the constant income, both the prices have fallen making the individual better off in 2019.

[In 2019, the individual buys a basket that costs more in 2018 than the basket he bought in 2018. With no change in the individual's income, this can happen only when both the prices fall.]

Rahul Sunny answered 1 year ago

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