Q1. Assume you are given $20 a week to spend only on your favorite choices of drinks. You have two favorite drinks: Di costs $2 and D2 costs $4. Your utility from the purchase of your drinks is U(D¹) and U(D2). The values of utilities are given below -
Q1. Assume you are given $20 a week to spend only on your favorite choices of drinks. You have two favorite drinks: Di costs $2 and D2 costs $4. Your utility from the purchase of your drinks is U(D¹) and U(D2). The values of utilities are given below -
Chapter6: Consumer Choice And Demand
Section: Chapter Questions
Problem 2.5P
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Transcribed Image Text:Q1. Assume you are given $20 a week to spend only on your favorite choices of drinks. You
have two favorite drinks: Di costs $2 and D2 costs $4. Your utility from the purchase of your
drinks is U(D₁) and U(D2). The values of utilities are given below -
D₁
0
1
2
3
4
5
U(D₁)
0
12
20
26
30
32
D₂
0
1
3
U(D₂)
0
2 3
32
5
20
40
444
46
X is the number of D1 and Y is the number of D2 you purchase in a week.
a) What combination of X and Y would make you a utility maximizer?
b) If you are not maximizing your utility, how should you reallocate your allowance? Explain.
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