Suppose that a consumer's income triples. However, at the same time, both the price of $x$ and the price of $y$ also triple. This consumer has experienced:
A) an increase in purchasing power.
B) a decrease in purchasing power.
C) no change in purchasing power.
D) a pivot in the budget constraint with an undetermined effect on purchasing power.

Question

Quizplus · Accepted Answer

Even though the consumer's income tripled, the prices of both goods also tripled, resulting in no change in the purchasing power of the consumer. The budget constraint will shift outward by a factor of three, but the relative prices will also be three times higher, resulting in the same consumption bundle as before. Although the consumer's income has increased threefold, the prices of the goods have also increased threefold, resulting in no change in the consumer's purchasing power. The consumer can still afford the same bundle of goods as before.

Suppose That a Consumer's Income Triples xxx And the Price Of yyy

Suppose That a Consumer's Income Triples $x$ And the Price Of $y$