Sofia spends all of her income on pizza and gasoline. Suppose Sophia is presented with two options: A and B. Option A will subsidize gasoline by decreasing its price by 50%. Option B will increase Sophia's income by the cost of the subsidy in Option A. Assuming Sophia strictly prefers Option B to Option A, which of the following must be true?

Question

Quizplus · Accepted Answer

Option B allows Sophia to allocate the additional income according to her preferences, which could include spending on both pizza and gasoline. If she strictly prefers Option B, it implies she values the flexibility to spend on both goods, indicating she consumes some of each.

Sofia Spends All of Her Income on Pizza and Gasoline