Question

Joshua is currently consuming the optimal (utility-maximizing) quantities of tuna and ham when the price of tuna suddenly decreases. how will he respond to this price change?

Answer 1

Joshua is currently consuming the optimal (utility-maximizing) quantities of tuna and ham when the price of tuna suddenly decreases. He will respond to this price change by increasing the consumption of tuna as his purchasing power will increase.

Whenever the price of a commodity is decreased, it increases the purchasing power of the consumer and hence the consumer will increase the demand of the goods as well. The consumer will be able to save more money as their expenses are reduced.

According to the law of demand and supply, demand and supply are related to each other and also affect the price of the commodity. The price tend to increase when the supply is lower than the demand and the price tend to increase when the supply exceeds the demand.

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