Question

Kevin is maximizing his utility consumption of almond butter sandwiches and sushi. There is a boom in fish in the summer and the price of sushi suddenly drops. What will the price change most likely change in Kevin's consumption behavior? Group of answer choices Kevin will stick to his original indifference curve to a point intersecting the new budget constraint. Kevin's budget constraint and indifference curves will not change since the price of sushi has not changed Kevin will change his new budget constraint to be tangent to the original indifference curve at some point. Kevin will increase consumption with the bundle of goods at a new higher indifference curve tangent to the new budget constraint.

Answer 1

Answer:

Kevin will increase consumption with the bundle of goods at a new higher indifference curve tangent to the new budget constraint.

Explanation:

Kevin's consumption possibilities frontier basically shows the budget constraint that Kevin faces when deciding what to purchase. It also represents the opportunity cost of consuming one product instead of another.

If the price of one of the products changes, then the whole consumption possibilities change and a new bundle of goods will be available.

E.g. Kevin had $10, sushi costs $5 and sandwiches cost $5. He can either buy 1 sushi and 1 sandwich, 2 sushis or 2 sandwiches. If the price of sushi decreases to $2.50, then Kevin's options increase. He can now purchase 2 sushis and 1 sandwich, 2 sandwiches or up to 4 sushis.