Ron starts out in consumer equilibrium, consuming two goods, X and Y. Ron's income rises. At this point, we can definitely conclude that A)MUX/PX MUY/PY, and then Ron increases his consumption of X. B)MUX/PX MUY/PY, and then Ron decreases his consumption of X. C)MUX/PX

Question

Ron starts out in consumer equilibrium, consuming two goods, X and Y. Ron's income rises. At this point, we can definitely conclude that A)MUX/PX > MUY/PY, and then Ron increases his consumption of X. B)MUX/PX > MUY/PY, and then Ron decreases his consumption of X. C)MUX/PX < MUY/PY, and then Ron increases his consumption of X. D)MUX/PX < MUY/PY, and then Ron decreases his consumption of X. E)none of the above.

Quizplus · Accepted Answer

When Ron's income rises, we cannot definitively conclude any of the given options about the marginal utility per price ratio or his consumption changes without additional information about his preferences or the nature of goods X and Y (whether they are normal or inferior goods).

Ron Starts Out in Consumer Equilibrium, Consuming Two Goods, X