Figure 5-14
-Martha initially buys the combination of pens and pencils shown as A in Figure 5-14.After the prices of both goods change, she buys combination B.It must be true that

Question

Figure 5-14 
-Martha initially buys the combination of pens and pencils shown as A in Figure 5-14.After the prices of both goods change, she buys combination B.It must be true that

Quizplus · Accepted Answer

We can see from the graph that combination B is on a higher indifference curve than combination A.Also, Martha remains on the same budget constraint after the price changes.So, she can now afford to buy a combination that lies on a higher indifference curve (given the normal assumption of more is better).Therefore, Martha prefers B to A.

Figure 5-14 -Martha Initially Buys the Combination of Pens and Pencils Shown