TutorOn by Sanath Withanage

Question:

Consider that a consumer spends his/her entire income on the purchase of two goods X and Y. If the consumer’s income and prices of good X and Y double, and other things remain unchanged, this consumer will
(1) double the purchase of goods X and Y.
(2) buy more of good X and less of good Y.
(3) buy less of good X and more of good Y.
(4) buy less of both goods X and Y.
(5) buy the same amounts of goods X and Y as before.

Correct Answer:

(5)

Answer Explanation:

If income doubles and the prices of all goods double simultaneously, the consumer’s real purchasing power remains completely unchanged. Therefore, their budget constraint is identical, and they will buy the exact same combination of goods.

Topic: Consumer Theory Year: 2022