After the price fall, which of the following is correct about Meena’s old bundle of 3 kg of apples and 6 dozen bananas, if her preferences are monotonic?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → It lies below the new budget line, so it cannot be her new optimum
At the new prices, the old bundle costs less than Meena’s income. So it lies below the new budget line, and with monotonic preferences such a point is never the optimum.
Cost of the old bundle now = 3 × 15 + 6 × 10 = 45 + 60 = Rs 105
Rs 105 is less than her income of Rs 120
Money left over = 120 − 105 = Rs 15
With it she can buy a bundle on the new budget line with more of at least one fruit and no less of the other, which she prefers.
Option (3) It lies below the new budget line, so it is her new optimum as it saves money — saving money does not make a bundle the optimum; the left-over income could buy something she likes more.
NCERT (2026-27): “2.3 Optimal Choice of the Consumer … The rational consumer’s problem is to move to a point on the highest possible indifference curve given her budget set. … The optimum point would be located on the budget line. A point below the budget line cannot be the optimum. Compared to a point below the budget line, there is always some point on the budget line which contains more of at least one of the goods and no less of the other, and is, therefore, preferred by a consumer whose preferences are monotonic. … Points above the budget line are not available to the consumer. …” |