Before an Uneven Rise in Prices Allan Consumed 5 Bread

question 49

Multiple Choice

Before an uneven rise in prices Allan consumed 5 bread and 6 juice.After the price increase and with an increased welfare payment from the government Allan consumes 4 bread and 7 juice.Does the government payment represent a true cost-of-living adjustment (COLA) ?

• A) Yes, if the two consumption bundles lie on the same indifference curve.
• B) Yes, if the second bundle yields more utility than the first.
• C) No, the first bundle is clearly preferred.
• D) Not enough information.

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