Question

Audrey buys only apples and peaches. In June, apples sell for $2 each, and peaches sell for $1 each. In July, apples sell for $1 each and peaches sell for $2 each. Audrey’s income is $20 in both months. Assume that she likes both peaches and apples, consumes some of each in both months, and nothing else changes between the two months. T/F/U: If Audrey is equally happy in both months, then she eats more apples in July.

Answer 1

TRUE

Reason: Since the consumer is equally happy after the price change, it means he is on the same indifference curve after the price change.

Let the initial budget line by BL1 and after price change budget line be BL2.

Indifference curve is IC1.

Before price change, optimal bundle was X and after price change it becomes Y

As we can see, consumption of apples at new bundle Y increases than the before bundle X

Hence, the consumer eats more apples in July.