Question

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

Answer 1

If the price of one good increases by 10% and their income increases by 5%, then the consumer’s optimal consumption bundle will change, because now the consumer will buy more of the second good, as it becomes comparatively cheaper.