Blackbeard's demand functions for grog, x₁, and bread, 2, are (if his income and the goods' prices are such that he buys positive quantities of both goods M+P+P and = 2P₁ M-P₁ P₂ 2p₂ x₁ (Aside: As an exercise, you can show that these are indeed the demand functions if Blackbeard's utility function is: U(x₁, x2) = (₁ - 1) (x₂ +1).) Starting from the situation where Blackbeard's income is M=9, the price of grog is p₁ = 2, and the price of bread is p2= 1, how does Blackbeard's optimal bundle change if the price of grog, p₁, increases by a small amount (and all else remains the same)? Blackbeard's consumption of ₁ decreases and his consumption of ₂ decreases Blackbeard's consumption of ₁ increases and his consumption of ₂ increases Blackbeard's consumption of an increases and his consumption of 2 decreases Blackbeard's consumption of ₁ decreases and his consumption of 2 increases
Blackbeard's demand functions for grog, x₁, and bread, 2, are (if his income and the goods' prices are such that he buys positive quantities of both goods M+P+P and = 2P₁ M-P₁ P₂ 2p₂ x₁ (Aside: As an exercise, you can show that these are indeed the demand functions if Blackbeard's utility function is: U(x₁, x2) = (₁ - 1) (x₂ +1).) Starting from the situation where Blackbeard's income is M=9, the price of grog is p₁ = 2, and the price of bread is p2= 1, how does Blackbeard's optimal bundle change if the price of grog, p₁, increases by a small amount (and all else remains the same)? Blackbeard's consumption of ₁ decreases and his consumption of ₂ decreases Blackbeard's consumption of ₁ increases and his consumption of ₂ increases Blackbeard's consumption of an increases and his consumption of 2 decreases Blackbeard's consumption of ₁ decreases and his consumption of 2 increases
Chapter6: Demand Relationships Among Goods
Section: Chapter Questions
Problem 6.9P
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Transcribed Image Text:Blackbeard's demand functions for grog, x₁, and bread, #2, are (if his income and the goods' prices are such that he buys positive quantities of both goods):
M+P₁+P₂
2p1
and x =
M-P1-P2
2p₂
x₁ =
(Aside: As an exercise, you can show that these are indeed the demand functions if Blackbeard's utility function is: U(x₁, x₂) = (x₁ 1) (x₂ + 1).)
Starting from the situation where Blackbeard's income is M = 9, the price of grog is p₁ = 2, and the price of bread is p2 = 1, how does Blackbeard's
optimal bundle change if the price of grog, p₁, increases by a small amount (and all else remains the same)?
O Blackbeard's consumption of ₁ decreases and his consumption of ₂ decreases
Blackbeard's consumption of ₁ increases and his consumption of 2 increases
Blackbeard's consumption of ₁ increases and his consumption of 2 decreases
O Blackbeard's consumption of ₁ decreases and his consumption of 2 increases
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