Multiple Choice
Carlos consumes only two goods, apples and bananas.His utility function is given by U(x, y) =a3b2.He is endowed with wa apples and wb bananas.Unaware that prices are about to change, Carlos buys the quantities of apples and bananas that maximize his utility subject to his budget constraint.After he has made his purchases but before he has eaten them, the relative prices change.Carlos is then free to make further trades at the new relative prices if he wishes.
A) Carlos will definitely be better off after the price change.
B) Carlos will definitely be worse off after the price change.
C) Carlos will be better off after the price change if the price of the good for which he is a net seller rises relative to the price of the other good.
D) Carlos will be better off after the price change if the price of the good for which he is a net buyer rises relative to the price of the other good.
E) Carlos's utility will not be affected by the price change.
Correct Answer:
Verified
Correct Answer:
Verified
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