Suppose a consumer who purchases only two goods is making a utility-maximizing choice and then the price of one of the goods decreases. What will happen?
A) The consumer's purchasing power will increase.
B) The consumer's utility will increase.
C) The consumer's income will increase.
D) both a and b
E) all of the above

Question

Quizplus · Accepted Answer

When the price of one of the goods decreases, the consumer's purchasing power increases. This means that the consumer can now buy more of both goods or more of the other good with the same amount of money. As a result, the consumer's utility will increase as well because they can now afford more of the goods they desire. Therefore, both options (a) and (b) are correct. However, there is no indication that the consumer's income has increased, so option (c) is incorrect. Therefore, the correct answer is (D) both a and b.

Suppose a Consumer Who Purchases Only Two Goods Is Making