Original bundle of goods with the new prices
Course:- Macroeconomics
Reference No.:- EM131063693

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A basket of goods for a given consumer includes two goods X and Z. Consumer income is equal to $1,500 and the prices of these two goods are as follows:

Px=$25   Pz=$50

This consumer is consuming 10 units of good X. Suppose that over the course of a year, the price of good X changes by 20% and the price of good Z changes by -25%. How much income is needed to afford the same quantity of goods X and Z with the new prices? What is the rate of inflation? Is it possible for our consumer to buy the original bundle of goods with the new prices?

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