3. Assume a person has a utility function U = XY, and money income of GH¢ 10,000, facing an initial price of X of GH¢ 10 and price of Y of GH¢ 15. If the price of X increases to GH¢15, answer the following questions: a. What was the initial utility maximizing quantity of X and Y? What is the new utility maximizing quantity of X and Y following the increase in the price of X? c. Calculate the substitution effect and the income effect on X of this increase in the price of X using the Slutsky analysis. b.
3. Assume a person has a utility function U = XY, and money income of GH¢ 10,000, facing an initial price of X of GH¢ 10 and price of Y of GH¢ 15. If the price of X increases to GH¢15, answer the following questions: a. What was the initial utility maximizing quantity of X and Y? What is the new utility maximizing quantity of X and Y following the increase in the price of X? c. Calculate the substitution effect and the income effect on X of this increase in the price of X using the Slutsky analysis. b.
Chapter6: Demand Relationships Among Goods
Section: Chapter Questions
Problem 6.10P
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