Question

Let's say a consumer only consumes pizza and movie. When pizza price was 5 dollars and movie price was 10 dollars in 2016, the consumer chose Bundle 2. In 2017 pizza price increased to $6 and movie price decreased to 9 dollars. The consumer chose bundle 3 instead of bundle 2. Let's say the consumer doesn't save at all. How did the consumer's 2017 utility turn out (1.Increased 2. Decreased 3. Didn't change 4. Unknown) ? Please explain.

Answer 1

Answer : The correct option is 1.

In 2016 the spending amount was (5 + 10) = $15 and consumption bundle was 2.

In 2017 the spending amount is (6 + 9) = $15 and consumption bundle is 3.

Here it is clear that at $15 spending amount the total consumption level is increased by 1 bundle in 2017 in comparison to 2016 consumption bundle. As total consumption level increases here then obviously total utility level also increases in 2017 turn out. Therefore, 2017 utility turn out is increased for the consumer.