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Fact 9.3.1
Marc has an income of $20 and spends it on two goods,root beer (measured on the vertical axis)and chips (measured on the horizontal axis).The price of root beer is $1 a can.The price of chips is $0.50 a bag.Initially,Marc chooses to consume 10 cans of root beer and 20 bags of chips.Then the price of root beer rises to $1.50 per can and the price of chips falls to $0.25 a bag.
-Refer to Fact 9.3.1.When the price of a bag of chips falls,Marc
A)will consume more beer,more chips,and be better off.
B)will consume less beer,more chips,and be better off.
C)will consume less beer,more chips,and be worse off.
D)will consume less beer,less chips,and be worse off.
E)will consume more beer,less chips,and be better off.

Question

Quizplus · Accepted Answer

When the price of chips falls, Marc will consume more chips because they are cheaper. However, he will consume less root beer because it has become more expensive. It is unclear whether he will be better off or worse off without further information about his preferences and the utility he derives from each good.

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