4. Tim wants to maximise his utility given his utility function of U (A, B) = A² B¹. He faces 20; M = 250. However, a change in the following prices and income: PA = 25; PB = the price of good A to PA = 22 will change his optimal bundle. If he is only interested in being able to consume his original bundle of goods, how much income would he need after the price change? (a) Tim would require £54 less income (b) Tim would require £18.33 more income (c) Tim would require £10 less income (d) Tim would require £16.66 more income (e) Tim would require £16.66 less income
4. Tim wants to maximise his utility given his utility function of U (A, B) = A² B¹. He faces 20; M = 250. However, a change in the following prices and income: PA = 25; PB = the price of good A to PA = 22 will change his optimal bundle. If he is only interested in being able to consume his original bundle of goods, how much income would he need after the price change? (a) Tim would require £54 less income (b) Tim would require £18.33 more income (c) Tim would require £10 less income (d) Tim would require £16.66 more income (e) Tim would require £16.66 less income
Chapter6: Demand Relationships Among Goods
Section: Chapter Questions
Problem 6.9P
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Transcribed Image Text:4. Tim wants to maximise his utility given his utility function of U (A, B) = A² B¹. He faces
the following prices and income: PA = 25; PB = 20; M = 250. However, a change in
the price of good A to PA 22 will change his optimal bundle. If he is only interested in
being able to consume his original bundle of goods, how much income would he need
after the price change?
=
(a) Tim would require £54 less income
(b) Tim would require £18.33 more income
(c) Tim would require £10 less income
(d) Tim would require £16.66 more income
(e) Tim would require £16.66 less income
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