S.
Klepper, Economics
73-100, Fall 2011
Consider a consumer that consumes two goods, food and clothing. Suppose that between 1980 and 2000 the price per unit of food doubled, the price per unit of clothing increased by 75%, and the consumer’s income increased by 75%. Assume that the consumer’s preferences did not change between 1980 and 2000, and as always assume that the consumer chose the combination of food and clothing in each year that maximized the consumer’s utility.
Which
of the following statements concerning this situation are correct? Mark true for a correct answer and false for
an incorrect one and provide explanations for each of your answers.
_____1. The maximum number of units of food the consumer could purchase was greater in 1980 than 2000.
_____2. The maximum number of units of clothing the consumer could purchase was the same in 1980 and 2000.
_____3. The consumer sustained an unequivocal fall in real income between 1980 and 2000.
_____4. Whatever combination of food and clothing the consumer purchased in 2000, the consumer could have afforded the same combination of food and clothing in 1980.
_____5. The consumer must have been
better off in 2000 than 1980.