Imagine that there a cost of living crisis in the economy

due to high inflation. The prices of both goods, p1$1$ and p2,$2,$

increase. The relative increase in the price of good 2,$2,$ p2$2$ is

greater than the increase in the price of good 1,$1,$ p1.$1.$ Although

the income, m,$,$ increases, it increases relatively less than the

prices of both goods. How does the changes in prices and

income affect the optimal consumption levels of both goods

in absolute and relative terms?

Answer rating: 100% (QA)

The question seems to be asking to analyze how changes in prices and income affect the optimal consumption levels of two goods referred to as good 1 a... View the full answer