Suppose that the price of gasoline has risen by 50%. What happens to a consumer\

Question

Suppose that the price of gasoline has risen by 50%. What happens to a consumer's level of well-being given he spends some of his income on gasoline? Diagram the impact of the increase in gas prices in a commodity space diagram, and show the relevant indifference curves. Now, if the individual's income rises just enough so that his original consumption bundle exactly exhausts his income, will the individual purchase more or less gaso- line (this level of income implies the consumer can afford his original consumption bundle)? Is the individual better-of at the higher price level of gasoline with the higher income level or the original price of gas and income?

Explanation / Answer

with explanations :) As the price of gasoline increases , and the consumer is still consuming it so the there is less money left for other purposes . so his well-being DECREASES NO . he cannot purchase full bundle because he has other necessities other than gasoline like Food and basic things . so he cannot spend all his income on gasoline as you saw from the above two answers, there the consumer is having trouble with the price rise, he is better off at the original prices

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