Price increase makes the agent worse off

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Reference no: EM131165004

Previously, we have considered agents whose income is fixed independently of prices. For this problem, consider instead an agent whose income comes from selling his endowment omega, where omega_1 > 0 and omega_2 > 0. Suppose that originally prices are (p_1, p_2), and the agent demands more of good 1, and then the price of good 1 increases to p'_1 > p_1. Give an example where this price increase makes the agent worse off, and give a second example where this price increase makes the agent better off.

Reference no: EM131165004

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