Asked by Larissa Vanolli on May 18, 2024
Verified
Murphy used to consume 100 units of X and 50 units of Y when the price of X was $2 and the price of Y was $4.If the price of X rose to $4 and the price of Y rose to $7, how much would Murphy's income have to rise so that he could still afford his original bundle?
A) $750
B) $500
C) $350
D) $250
E) None of the above.
Original Bundle
A combination of goods or services initially chosen by a consumer before any changes in price or income.
Price Rise
An increase in the cost of goods or services, which can affect purchasing power and economic indicators like inflation.
- Evaluate the essential increase in financial intake to maintain consumer habits upon price modifications.
- Study the consequences of changes in costs on the choices of buyers and how they allocate their budget.
Verified Answer
MS
Malak SalemMay 22, 2024
Final Answer :
C
Explanation :
Murphy's original consumption bundle costs $300 [(100 units of X × $2) + (50 units of Y × $4)].
If the price of X rises to $4, but Murphy still wants to consume 100 units of X, he will need to spend $400 on X alone.
If the price of Y rises to $7, but Murphy still wants to consume 50 units of Y, he will need to spend $350 on Y alone.
Therefore, Murphy's new consumption bundle would cost $750 in total ($400 for X + $350 for Y).
To afford his original bundle, his income would have to rise by $450 ($750 - $300), which is closest to answer choice C ($350).
If the price of X rises to $4, but Murphy still wants to consume 100 units of X, he will need to spend $400 on X alone.
If the price of Y rises to $7, but Murphy still wants to consume 50 units of Y, he will need to spend $350 on Y alone.
Therefore, Murphy's new consumption bundle would cost $750 in total ($400 for X + $350 for Y).
To afford his original bundle, his income would have to rise by $450 ($750 - $300), which is closest to answer choice C ($350).
Learning Objectives
- Evaluate the essential increase in financial intake to maintain consumer habits upon price modifications.
- Study the consequences of changes in costs on the choices of buyers and how they allocate their budget.