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

Martha originally chose combination A that was along the budget line AB. After the prices changed, her budget line shifts outward to line CD. Combination B lies on this new budget line, which means she can afford B after the price change. Since she chooses B on the new budget line, it must be the case that she prefers B to A.

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