Question

Suppose David buys cheese (X) and fruit (Y) with his income of $48 per week. Suppose the price of cheese has recently risen from $4 to $6 per pounds, while the price of fruit has fallen from $8 to $6 per pound. Before the price changes, David had been buying 4 lb. of cheese and 4 lb. of fruit each week. Since the price changes, he has been buying 2 lb. of cheese and 6 lb. of fruit weekly. Assuming David’s preferences have not changed, is it possible to say whether the price changes have made him better off or worse off? Use an indifference curve-budget line analysis to explain your answer.

Answer 1