In the Managerial Problem, suppose that entertainment is relatively more expensive in London than in Seattle so that the LL budget line cuts the LS budget line from below rather than from above as in the figure in the Managerial Solution. Show that the conclusion that Alexx is better off after his move if his new income allows him to buy bundle s still holds. Explain the logic behind the following statement: “The analysis holds as long as the relative prices differ in the two cities. Whether both prices one price, or neither price in London is higher than in Seattle is irrelevant to the analysis.”

  • CreatedNovember 13, 2014
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