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Arafia consumes two goods X and Y. Her utility function is given by U(x, y) = x"y. The price of Good X used to be $5 per unit but has recently increased to $10 per unit. The price of Good Y has remained unchanged $10 per unit. Arafia has $500 to spend. Suppose the government wants to give Arafia enough money so that she can still buy the previous consumption bundle that she was buying before the increase in Px. Which of the following statements is CORRECT? O The government needs to give Arafia approx. $750 or an additional $250. O The government needs to give Arafia approx. $650 or an additional $150. The government needs to give Arafia approx. $541.4 or an additional $41.4. O The government needs to give Arafia approx. $550 or an additional $50.

Arafia consumes two goods X and Y. Her utility function is given by U(x, y) = x"y. The price of Good X used to be $5 per unit but has recently increased to $10 per unit. The price of Good Y has remained unchanged $10 per unit. Arafia has $500 to spend. Suppose the government wants to give Arafia enough money so that she can still buy the previous consumption bundle that she was buying before the increase in Px. Which of the following statements is CORRECT? O The government needs to give Arafia approx. $750 or an additional $250. O The government needs to give Arafia approx. $650 or an additional $150. The government needs to give Arafia approx. $541.4 or an additional $41.4. O The government needs to give Arafia approx. $550 or an additional $50.

Microeconomic Theory
Microeconomic Theory
12th Edition
ISBN:9781337517942
Author:NICHOLSON
Publisher:NICHOLSON
Chapter6: Demand Relationships Among Goods
Section: Chapter Questions
Problem 6.9P
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Arafia consumes two goods X and Y. Her utility function is given by U(x, y) = x*y. The price of Good X used to be $5 per unit but has recently increased to $10 per unit. The price of Good Y has remained unchanged $10 per unit. Arafia has $500 to spend. Suppose the government wants to give Arafia enough money so that she can still buy the previous consumption bundle that she was buying before the increase in Px. Which of the following statements is CORRECT? O The government needs to give Arafia approx. $750 or an additional $250. O The government needs to give Arafia approx. $650 or an additional $150. The government needs to give Arafia approx. $541.4 or an additional $41.4. The government needs to give Arafia approx. $550 or an additional $50.
Transcribed Image Text:Arafia consumes two goods X and Y. Her utility function is given by U(x, y) = x*y. The price of Good X used to be $5 per unit but has recently increased to $10 per unit. The price of Good Y has remained unchanged $10 per unit. Arafia has $500 to spend. Suppose the government wants to give Arafia enough money so that she can still buy the previous consumption bundle that she was buying before the increase in Px. Which of the following statements is CORRECT? O The government needs to give Arafia approx. $750 or an additional $250. O The government needs to give Arafia approx. $650 or an additional $150. The government needs to give Arafia approx. $541.4 or an additional $41.4. The government needs to give Arafia approx. $550 or an additional $50.
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