Asked by Chelsie Bishop on Jun 11, 2024
Verified
Prudence was maximizing her utility subject to her budget constraint.Then prices changed.After the change, she is better off.Therefore the new bundle costs more at the old prices than the old bundle did.
Utility Maximization
The process or strategy of choosing the combination of goods and services that maximizes the utility or satisfaction of a consumer, given their budget constraints.
Budget Constraint
An economic term referring to the limitations on spending based on available resources, affecting decisions in consumption and investment.
Prices Change
Refers to the fluctuations in the cost of goods and services over time due to various economic factors.
- Understand the impact of price changes on consumer utility and the cost of consumption bundles.
Verified Answer
VV
Vanessa ValdovinosJun 13, 2024
Final Answer :
True
Explanation :
If Prudence is better off after the price change, it means she has reached a higher level of utility. For the new bundle to provide higher utility and still be chosen by Prudence, it must have been unaffordable at the old prices, meaning it cost more than the old bundle at those prices.
Learning Objectives
- Understand the impact of price changes on consumer utility and the cost of consumption bundles.