Answer to Question #89522 in Economics of Enterprise for Hassan Muqarab

Question

A consumer splits their income equally between two goods. If the price of one good increase by 10% and their income increases by 5%, show that the consumer’s optimal consumption bundle will change.

Please answer a particular question with the help of graph

Answer 1

If the price of one good increase by 10% and their income increases by 5%, then the quantity of the first good consumed will decrease and the quantity of the second good consumed will increase as a result of the price and income effects.