Suppose a consumer buys two goods, $x$ and $y$ , and has income of $30. Initially P_x = 3 and P_y = 3 and the consumer chooses basket $A$ with x =5 and y= 5. The prices change to P_x= 4 and P_y = 2 and the consumer chooses basket $B$ with x = 1 and y = 13. A) These choices are consistent with utility maximization. B) These choices are not consistent with utility maximization. C) With this information it is not possible to determine if these choices are consistent with utility maximization. D) Basket $B$ must be strictly preferred to basket $A$ .

Question

Quizplus · Accepted Answer

The consumer's choices are consistent with utility maximization because both baskets $A$ and $B$ are affordable given the budget constraints, and the consumer has adjusted their consumption in response to the change in relative prices, which is consistent with maximizing utility.

Suppose a Consumer Buys Two Goods xxx And yyy , and Has Income of $30

Suppose a Consumer Buys Two Goods $x$ And $y$ , and Has Income of $30