Answer to Question #79503 in Microeconomics for Jack Griffin

Question

If I have 2 normal goods at $5 and $10 respective and a budget of $200 where I will purchase 20 of A and 10 of B. Then say the next period I go to buy the same normal goods but their price fluctuated to $2.50 and $20 respectively would I be more satisfied with good A costing $5 or $2.50 when I can buy just as many of each good within my budget constraints still? And if I were to be happier with one of the options why?

Answer 1

According to the theory of consumer’s choice after the price changes you have to buy 40 units of A and 5 units of B, because in this case the relations between the prices and quantities of goods are equal. And, you would be more satisfied with good A, because its amount increased.