Question

George buys 2.5 pounds of hamburger and 2 pounds of chicken per week when hamburger costs $4 per pound and chicken costs $5 per pound, and this bundle of goods costs him $20 per week. What will happen if the price of hamburger drops to $2 per pound and the price of chicken increases to $7.50 per pound? [Note that George's original bundle of hamburger and chicken still costs $20 after these price changes.] A. George buys less hamburger and more chicken, and he is better off. B. George buys more hamburger and less chicken, and he is better off. C. George buys more hamburger and less chicken, and he is just as well off as before. D. George buys more hamburger and less chicken, and he is worse off. E George buys the same amounts of hamburger and chicken as before, and he is just as well off as before. F. George buys less hamburger and more chicken, and he is worse off.

Answer 1

Option (B) is correct.

Step-by-step explanation:

Total cost of hamburger when price is $4 per pound:

= 2.5 pounds × $4

= $10

Total cost of chicken when price is $5 per pound:

= 2 pounds × $5

= $10

Total cost for both the goods:

= $10 + $10

= $20

Total cost of hamburger when price is dropped from $4 per pound to $2 per pound:

= = 2.5 pounds × $2

= $5

Total cost of chicken when price is increased from $5 per pound to $7.50 per pound:

= 2 pounds × $7.5

= $15

Now, total cost of both the goods:

= $5 + $15

= $20

From the above calculations, we conclude that George will buy more of hamburgers than chicken and he is better off as he will get hamburgers at a lower cost than chicken.