Question

The price of wine has risen from $7 to $9 per bottle and the price of cheese has fallen from $6 to $5 per pound, while Anne’s income has stayed fixed at $46 per week. Since the price changes, Anne has been buying 4 bottles of wine and 2 pounds of cheese per week. We can conclude that A) Anne may be worse, better, or indifferent after the price change B) Anne is indifferent about the price change C) Anne is worse off after the price change D) Anne is better off after the price change

Answer 1

Answer:

The correct answer is option C.

Explanation:

The price of wine has risen from $7 to $9 per bottle and the price of cheese has fallen from $6 to $5 per pound.

Anne’s income has stayed fixed at $46 per week.

Anne has been buying 4 bottles of wine and 2 pounds of cheese per week.

At the initial price she was spending

= $( 7\ \times\ 4)\ +\ ( 6\ \times\ 2)$

= $28 + $12

= $40

After the price change she has to spend

= $( 9\ \times\ 4)\ +\ ( 5\ \times\ 2)$

= $36 + $10

= $46

Since she has to spend more to consume the same level of output, we can say that Anne is worse off.