Suppose Tim spends his entire income on hot dogs and hamburgers and consumes at least some of both.Now suppose that the price of hot dogs increases while the price of hamburgers remains the same.If Tim is compensated so that his utility is held constant,which of the following must be TRUE?

Question

Quizplus · Accepted Answer

Tim's budget line will rotate inward, making him worse off. To maintain his utility, he must consume more of the good that has become relatively cheaper (hamburgers) and less of the good that has become relatively more expensive (hot dogs).

Suppose Tim Spends His Entire Income on Hot Dogs and Hamburgers