Ellsworth spends all of his income on two goods, x and y. He always consumes the same
Question:
Ellsworth spends all of his income on two goods, x and y. He always consumes the same quantity of x as he does of y, Qx = Qy. Ellsworth’s current weekly income is $150 and the price of x and the price of y are both $1 per unit. Ellsworth’s boss is thinking of sending him to New York where the price of x is $1 and the price of y is $2. The boss offers no raise in pay, although he will pay the moving costs. Ellsworth says that although he doesn’t mind moving for its own sake, and New York is just as pleasant as Boston, where he currently lives, he is concerned about the higher price of good y in New York: he says that having to move is as bad as a cut in weekly pay of $A. He also says he wouldn’t mind moving if when he moved he got a raise of $B per week. What are the values of A and B?
Step by Step Answer:
Cost Benefit Analysis
ISBN: 9781032320755
3rd Edition
Authors: Harry F. Campbell, Richard P.C. Brown