PROBLEM (2) Ice cream and cakes are perfect substitutes for a child, and 2 units of ice cream is always worth 3 units of cakes (however many ice creams or cakes she might have, she would be willing to give up 2 ice creams to get 3 more cakes to keep the same utility level). (a) Write down a utility function u(x,y) that represents the child's preferences, where x is the number of ice creams and y is the number of cakes she has. (b) If the prices are px = 8 and px=5, and she has $140 to spend on the two goods this summer, what is her optimal bundle? (c) If the price of ice creams decreases slightly, down to px = 7, what happens to her optimal bundle in this case? Did it change "slightly" compared to (b)?
PROBLEM (2) Ice cream and cakes are perfect substitutes for a child, and 2 units of ice cream is always worth 3 units of cakes (however many ice creams or cakes she might have, she would be willing to give up 2 ice creams to get 3 more cakes to keep the same utility level). (a) Write down a utility function u(x,y) that represents the child's preferences, where x is the number of ice creams and y is the number of cakes she has. (b) If the prices are px = 8 and px=5, and she has $140 to spend on the two goods this summer, what is her optimal bundle? (c) If the price of ice creams decreases slightly, down to px = 7, what happens to her optimal bundle in this case? Did it change "slightly" compared to (b)?
Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter6: Consumer Choice And Demand
Section: Chapter Questions
Problem 6QFR
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