Question
Mr. J. Bond, a retired movie actor, consumes only grapes and the composite good Y (i.e. price of Y is 1). His income consists of
Mr. J. Bond, a retired movie actor, consumes only grapes and the composite good Y (i.e. price of Y is 1). His income consists of 10000 a year from his investment fund plus the proceeds of whatever he sells of the 2000 bushels of grapes he harvests annually from his vineyard in Tuscany. Last year, grapes sold at 2 per bushel and Bond consumed all 2000 bushels of his grapes, in addition to 10,000 units of Y.This year, the price of grapes is 3 per bushel (and the price of the composite good Y is the same as before). If Bond has well-behaved preferences, will his consumption of grapes this year be greater than, less than or the same as last year's? How about his consumption of the composite good? (Hint: Graph both years' budget constraints and think about whether last year's bundle is affordable to Mr. R).
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