Question

Morton was exhausting his income by consuming 76 units of chewing gum and 49 of cigarettes a week. The price of chewing gum increased from $58 to $69. The price of cigarettes increased from $39 to $191. How much would Morton's income have to rise so that he can still exactly afford 76 units of chewing gum and 49 cigarettes? (remember consumer income is always exhausted). (Hint: use the budget equation with the prices and quantities given to you in the problem).

Answer 1

Answer: $6,814

Step-by-step explanation:

Given that,

Initial price of chewing gum = $58

New price of chewing gum = $69

Initial price of cigarette = $39

New price of cigarette = $191

As per the budget equation,

Income with Initial price = Initial Price of chewing gum × quantity of chewing gum + Initial Price of cigarette × quantity of cigarette

= $58 × 76 + $69 × 49

= $4,408 + $3,381

= $7,789

Income with New price = New Price of chewing gum × quantity of chewing gum + New Price of cigarette × quantity of cigarette

= $69 × 76 + $191 × 49

= $5,244 + $9,359

= $14,603

Rise in income required = Income with New price - Income with Initial price

= $14,603 - $7,789

= $6,814

So, there is a need to rise the income by $6,814 and to become $14,603 to maintain the similar level of consumption.