Alex doesn\'t care about where he lives, but he does care about what he eats. Al

Question

Alex doesn't care about where he lives, but he does care about what he eats. Alex spends all his money on restaurant meals at either American (x_a) or French restaurants (x_f). His firm offers to transfer him from its Austin office to its Paris office, where he will face different prices. The firm will pay him a salary in euros such that he can buy the same bundle of goods in Paris that he is currently buying in Austin.

1. Will Alex be better off in Paris if the relative prices between American and French meals (p_a/p_f) are lower in Paris than Austin? Why?

2. Will Alex be better off in Paris if the relative prices between American and French meals (p_a/p_f) are higher in Paris than Austin? Why?

Explanation / Answer

1.) Yes, because his ability to purchase goods increases so his money is essentially worth more locally. 2.) No, because even though he can purchase the same ingredients, they will cost more, and he will havel ess goods than living in AUstin.

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