Mike consumes x and y. The price of x is $5 and the price of y is $10. Mike’s on
ID: 1222409 • Letter: M
Question
Mike consumes x and y. The price of x is $5 and the price of y is $10. Mike’s only source of income is his endowment of 7 units of x and 7 units of y which he can buy or sell at the stated prices. He plans to consume 9 units of x and 6 units of y. If the prices change to $8 for x and $16 for y,
a. Mike will be better off.
b. Mike will be worse off.
c. Mike will be neither better off nor worse off.
d. Mike will be worse off only if he had been selling x and buying y.
e. Mike will be better off only if he had been selling x and buying y.
Explanation / Answer
Budget line
QxPx+QyPy=M
7*5+7*10=105
9*5+6*10=105
9*8+6*16=168
Answer
Option B: Mike will worse off
because for same utility he have to spend more and his income is less than required