Social security benefits are adjusted to account for changes in prices using the consumer price index(CPI ).
The CPI prices a fixed basket of goods over time.
If the cost of purchasing this fixed basket of goods rises 5%, then social security payments are increased 5%.
Yasha's only income is social security and , in period 0, yasha consumes the same commodity bundle that is used by the CPI.
Yasha 's preferences over commodities are well-behaved.
Suppose the price of X increases in period 1 while the price of Y does not change,.
After the increase in the price of X and CPI adjustment to her social security, will yasha be happier, sadder or be just as happy as he was in period 0?
Illustrate (using budget lines and indifference curves) and explain your answer carefully.