Answer to Question #105656 in Microeconomics for karisma

Question

A consumer splits their income equally between two goods. If the price of one good increases by 10% and their income increases by 5%, show that the consumer’s optimal consumption bundle will change despite them being able to afford their original bundle.

Answer 1

The consumer’s optimal consumption bundle will change despite them being able to afford their original bundle, because the consumer will buy less of the first good and more of the second good, because the first good will be less desirable for him.