Question

if the per unit price of college education rises and the prices of all other items...

if the per unit price of college education rises and the prices of all other items fall, is it possible for the consumer to end up on the same indifference curve as before the price changes? if so, will the consumer be purchasing the same market basket? support your answer with a diagram

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Answer #1

Answer.)

If the price of one unit of college education rises and the price of all other goods (the composite good) falls, the consumer could (but does not always have to) be on the same indifference curve.The old budget line was AZ and the new one is KK’. If the consumer on the same indifference curve, she will never buy the same market basket as she did before (at point E). The new marginal rate of substitution at point E’ is higher than it used to be at point E, since the consumer will change her optimal consumption bundle to reflect the new relative prices . So the consumer will always buy more other goods and less education.

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