Question

Suppose there are only two types of goods to consume: food and leisure. An average Californian citizen has a daily income of $100. The price of one meal of food is $20 and the price (or value) of one unit of leisure is $10. An average citizen in Mississippi has a daily income of $50. The price of one unit of food is $10 and the price (or value) of one unit of leisure is $10. Who is more well-off in terms of the bundles of goods they can consume? (hint: draw budget sets.)

Answer 1

Answer:

Californian citizen

Explanation:

For a Californian citizen, the maximum number of meals and units of leisure they could possibly acquire per day are:

$M_C = \frac{\ 100}{\ 20} =5\\L_C = \frac{\ 100}{\ 10} =10$

For a Mississippi citizen, the maximum number of meals and units of leisure they could possibly acquire per day are:

$M_M = \frac{\ 50}{\ 10} =5\\L_M = \frac{\ 50}{\ 10} =5$

Both citizens can acquire the same number of meals, but the Californian citizen can acquire twice as many units of leisure than the Mississippi citizen. Therefore, the Californian citizen is more well-off in terms of the bundles of goods they can consume.