In a scenario where a consumer faces a budget constraint of $60 to spend on goods X and Y, with good X priced at $12 and good Y at $4, how would an increase in the price of good X to $15 affect the consumer's optimal consumption choices, assuming their preferences are represented by indifference curves?

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Seekh · Accepted Answer

When the price of good X rises from $12 to $15, the budget line pivots inward, cutting off some of the previous affordable combinations. The consumer’s indifference curves show that, before the price change, they were able to buy a bundle where the marginal utility per dollar spent on X equaled that of Y; now the higher price makes X more expensive per unit of utility. Consequently the consumer will shift to a bundle with fewer units of X and more of Y, staying on the same indifference curve but at a point where the slope of the indifference curve equals the new price ratio of 15/4. For example, if the consumer originally chose 3 units of X and 7. 5 units of Y (cost $60), after the price hike they might choose 2 units of X and 9.

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If a consumer has a budget of $50 and prefers to buy two goods, A and B, how can they maximize their satisfaction given that good A costs $10 and good B costs $5?

Consider a consumer with a monthly budget of $80 who wants to purchase two goods, X and Y. If good X costs $16 and good Y costs $8, which combination of these goods would yield the highest level of satisfaction while adhering to the budget constraint?

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