Robin consumes two goods X and Y. His utility function is given by U(x, y) = x*y. The price of Good X used to be $10 per unit but has recently increased to $20 per unit due to the good being taxed. The price of Good Y has remained unchanged at $20 per unit. Robin has $2000 to spend. Suppose the government wants to give Robin enough money so that he can still consume the amount of X and Y that he was consuming before the price change. Which of the following statements is CORRECT? O At the earlier prices, Robin would consume 75 units of X and 100 units of Y. This bundle now costs $2750. But if the government gave Robin an additional $750 then Robin would prefer to consume 80 units each of X and Y. O At the earlier prices, Robin would consume 50 units of X and 100 units of Y. This bundle now costs $2500. So, the government needs to give Robin an additional $500 to afford the original bundle. But if the government gave Robin an additional $200 then Alex would prefer to consume 100 units each of X and Y. O At the earlier prices, Robin would consume 200 units of X and 50 units of Y. This bundle now costs $3000. So, the government needs to give Robin an additional $1000 to afford the original bundle. But if the government
Robin consumes two goods X and Y. His utility function is given by U(x, y) = x*y. The price of Good X used to be $10 per unit but has recently increased to $20 per unit due to the good being taxed. The price of Good Y has remained unchanged at $20 per unit. Robin has $2000 to spend. Suppose the government wants to give Robin enough money so that he can still consume the amount of X and Y that he was consuming before the price change. Which of the following statements is CORRECT? O At the earlier prices, Robin would consume 75 units of X and 100 units of Y. This bundle now costs $2750. But if the government gave Robin an additional $750 then Robin would prefer to consume 80 units each of X and Y. O At the earlier prices, Robin would consume 50 units of X and 100 units of Y. This bundle now costs $2500. So, the government needs to give Robin an additional $500 to afford the original bundle. But if the government gave Robin an additional $200 then Alex would prefer to consume 100 units each of X and Y. O At the earlier prices, Robin would consume 200 units of X and 50 units of Y. This bundle now costs $3000. So, the government needs to give Robin an additional $1000 to afford the original bundle. But if the government
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![Robin consumes two goods X and Y. His utility function is given by U(x, y) = x*y. The price of Good X
used to be $10 per unit but has recently increased to $20 per unit due to the good being taxed. The price
of Good Y has remained unchanged at $20 per unit. Robin has $2000 to spend. Suppose the
government wants to give Robin enough money so that he can still consume the amount of X and Y
that he was consuming before the price change. Which of the following statements is CORRECT?
O At the earlier prices, Robin would consume 75 units of X and 100 units of Y. This bundle now costs $2750. But
if the government gave Robin an additional $750 then Robin would prefer to consume 80 units each of X and
Y.
At the earlier prices, Robin would consume 50 units of X and 100 units of Y. This bundle now costs $2500. So,
the government needs to give Robin an additional $500 to afford the original bundle. But if the government
gave Robin an additional $200 then Alex would prefer to consume 100 units each of X and Y.
O At the earlier prices, Robin would consume 200 units of X and 50 units of Y. This bundle now costs $3000. So,
the government needs to give Robin an additional $1000 to afford the original bundle. But if the government
gave Robin an additional $1000 then Alex would prefer to consume 100 units each of X and Y.
O At the earlier prices, Robin would consume 100 units of X and 50 units of Y. This bundle now costs $3000. So,
the government needs to give Robin an additional $1000 to afford the original bundle. But if the government
gave Robin an additional $1000 then Alex would prefer to consume 75 units each of X and Y.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa21ce8f6-2b9f-4ead-8fb0-d252b8795c0b%2Fa00cb44e-fb82-4cde-93f5-4105d0f0b5c9%2F9thth9r_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Robin consumes two goods X and Y. His utility function is given by U(x, y) = x*y. The price of Good X
used to be $10 per unit but has recently increased to $20 per unit due to the good being taxed. The price
of Good Y has remained unchanged at $20 per unit. Robin has $2000 to spend. Suppose the
government wants to give Robin enough money so that he can still consume the amount of X and Y
that he was consuming before the price change. Which of the following statements is CORRECT?
O At the earlier prices, Robin would consume 75 units of X and 100 units of Y. This bundle now costs $2750. But
if the government gave Robin an additional $750 then Robin would prefer to consume 80 units each of X and
Y.
At the earlier prices, Robin would consume 50 units of X and 100 units of Y. This bundle now costs $2500. So,
the government needs to give Robin an additional $500 to afford the original bundle. But if the government
gave Robin an additional $200 then Alex would prefer to consume 100 units each of X and Y.
O At the earlier prices, Robin would consume 200 units of X and 50 units of Y. This bundle now costs $3000. So,
the government needs to give Robin an additional $1000 to afford the original bundle. But if the government
gave Robin an additional $1000 then Alex would prefer to consume 100 units each of X and Y.
O At the earlier prices, Robin would consume 100 units of X and 50 units of Y. This bundle now costs $3000. So,
the government needs to give Robin an additional $1000 to afford the original bundle. But if the government
gave Robin an additional $1000 then Alex would prefer to consume 75 units each of X and Y.
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