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11 January, 00:53

Morton was exhausting his income by consuming 76 units of chewing gum and 49 of cigarettes a week. The price of chewing gum increased from $58 to $69. The price of cigarettes increased from $39 to $191. How much would Morton's income have to rise so that he can still exactly afford 76 units of chewing gum and 49 cigarettes? (remember consumer income is always exhausted). (Hint: use the budget equation with the prices and quantities given to you in the problem).

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  1. 11 January, 02:24
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    Answer: $6,814

    Explanation:

    Given that,

    Initial price of chewing gum = $58

    New price of chewing gum = $69

    Initial price of cigarette = $39

    New price of cigarette = $191

    As per the budget equation,

    Income with Initial price = Initial Price of chewing gum * quantity of chewing gum + Initial Price of cigarette * quantity of cigarette

    = $58 * 76 + $69 * 49

    = $4,408 + $3,381

    = $7,789

    Income with New price = New Price of chewing gum * quantity of chewing gum + New Price of cigarette * quantity of cigarette

    = $69 * 76 + $191 * 49

    = $5,244 + $9,359

    = $14,603

    Rise in income required = Income with New price - Income with Initial price

    = $14,603 - $7,789

    = $6,814

    So, there is a need to rise the income by $6,814 and to become $14,603 to maintain the similar level of consumption.
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