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Recently the price of lentil beans increased. As a result Lincoln residents noticed that their neighbor, Rasputin, increased his consumption of lentils and decreased his consumption of steak. Rasputin said his utility had declined. Many citizens made donations to the "Rasputin Relief Fund." Rasputin was given a cash grant equal to the amount he claimed to need to regain his initial utility level. Happy and thankful, Rasputin rushed off to the store to make his new purchases. Each graph above shows two indifference curves for Rasputin, I1 and I2, and the two budget constraints, B1 and B2, that he faced. Let E1 represent Rasputin's initial equilibrium, E2 equal his equilibrium following the increase in the price of lentils, E3 his equilibrium after receiving the cash from the relief fund. Which graph above is consistent with Rasputin's claims in the above story?

Business Economics, Economics

  • Category:- Business Economics
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