Suppose a consumer's income doubles. At the same time, the prices for all goods and services also double. What will happen to the consumer's optimal consumption bundle?

The consumer will consume twice as much.

The consumer will consume four times as much.

The consumer will consume half as much.

The consumer's consumption bundle will not change.

Question

Business

Selah Casey

21 November, 17:04

Suppose a consumer's income doubles. At the same time, the prices for all goods and services also double. What will happen to the consumer's optimal consumption bundle?

The consumer will consume twice as much.

The consumer will consume four times as much.

The consumer will consume half as much.

The consumer's consumption bundle will not change.

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Answers (1)

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Amy Lucas · Answer 1

The consumer's consumption bundle will not change.

Explanation:

The optimal consumption bundle refers to the ideal level of consumption at a given income level. It is the optimum basket of goods and services that consumers would buy with their income.

An increase in income results in an increase in consumption. The optimal consumption bundle increases. However, if prices increase, it may erode any gains achieved by an increase in income. If income and prices increase proportionately, consumers will not gain from an increase in income. The optional basket will remain the same.