Can some please explain one task: “In 2014, the consumer spent half of his income on the consumption of good X. Prices in 2015 increased by 20% on the consumption of good X, decline of prices on good Y was 30%. Consumers` Nominal income in this time increased by 25%. What happened with welfare of the consumer? Answer should be proved”
a) Increased
b) decreased
c) Did not improved
d) Did not deteriorate
e) We can not say definitely.
(A) In real and nominal terms the purchasing power increased. 25% nominal wage increase - the 20% increase in good X = 5% increase in purchasing power. As far as good Y: 25% nominal wage increase - (-30% price decrease in good Y) = 55% increase in purchasing power of good Y. Assuming the consumer spent 50% on good X and 50% on good Y they would be able to purchase 30% more goods a year later. The would increase the welfare of the consumer. On a side note, C and D can be eliminated immediately as they are the same thing and only one answer can be chosen.