Prudence was maximizing her utility subject to her budget constraint.Then prices changed.After the price change she was better off.Therefore the new bundle costs more at the old prices than the old bundle did.

Question

Quizplus · Accepted Answer

If Prudence was better off after the price change, it means she reached a higher utility level. Given that she was initially maximizing her utility subject to her budget constraint, the only way she could be better off (reach a higher utility level) after the price change is if she could afford a bundle that was previously out of her reach due to budget constraints. Therefore, the new bundle must cost more at the old prices than the old bundle did, as it represents a higher level of utility that was not attainable before the price change.

Prudence Was Maximizing Her Utility Subject to Her Budget Constraint