Recently, the Price of Lentils Increased

question 291

Multiple Choice

Recently, the price of lentils increased. As a result Lincoln residents noticed that their neighbor, Rasputin, decreased his consumption of lentils and 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-consisting of more steak and slightly less lentils. 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, and E₃ his equilibrium after receiving the cash from the relief fund. Which graph above is consistent with Rasputin's claims in the above story?

• A)graph A
• B)graph B
• C)graph C
• D)graph D

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Definitions:

Written Agreement

A formalized contract documenting the terms, conditions, rights, and obligations agreed upon by the parties involved, enforceable by law.

Undermine Partnership

Refers to actions or situations that weaken or damage the trust, collaboration, and effectiveness between partners in a business partnership.

Competes

Refers to the action of taking part in an event or contest with the aim to win against others.

Keirestu

A network of Japanese companies organized around a bank or a major manufacturing company, known for their close interrelations and support.