Q1 Haya consumes two beverages: San Pellegrino (i.e. fancy) water, and tap water

Question

Q1 Haya consumes two beverages: San Pellegrino (i.e. fancy) water, and tap water. She has
an income of $100 to spend on these goods per month. The price of tap water is $0.30 per
glass, and the price of fancy water is $10 per glass.

Haya tells you that for her, fancy and tap water are neither perfect substitutes nor perfect
complements, and that given her budget and these prices, her best affordable consumption
bundle is 4 glasses of San Pellegrino and 200 glasses of tap water. (She gets very thirsty.)

Now suppose the price of fancy water rises to $20 per glass, and the price of tap water
falls to $0.10 per glass. Is Haya better off, worse off, or indifferent as a result of the price
change? Why?

Explanation / Answer

Haya is indifferent as a result of the price change because even after the price change she can still can consume same combination of San Pellegrino and tap water.

Before price change

$10*4 + $0.30*200 = 100

Ater price change still

$20*4 + $0.10*200 = 100

So sme combination or bundle is consumed even after price change so indifferent

If you don't understand anything, then comment, I will revert back on the same.

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