Set-up: . Consider 2 countries: US and IT and a basket of commodities only comprising of food (F) and clothing (C). • Assume that the set of prices for the commodities in the countries in consideration are: PFS = 20, Pus= 30, PT = 100, P = 400. . Additionally, assume that the utility function of a representative consumer in the US is given by: Uus (Fus, Cus) = F.5C.5 while the utility function of a representative consumer from IT is: UIT (FIT, CIT) = F.6C.4. • Per-capita income in US is 2,000 units of US' currency, while in IT, it's 20,000 units of IT's currency. Questions: (a) Using utility maximization, determine which bundle a consumer from the US vs a consumer from IT will consume. Who is better off?

Set-up: . Consider 2 countries: US and IT and a basket of commodities only comprising of food (F) and clothing (C). • Assume that the set of prices for the commodities in the countries in consideration are: PFS = 20, Pus= 30, PT = 100, P = 400. . Additionally, assume that the utility function of a representative consumer in the US is given by: Uus (Fus, Cus) = F.5C.5 while the utility function of a representative consumer from IT is: UIT (FIT, CIT) = F.6C.4. • Per-capita income in US is 2,000 units of US' currency, while in IT, it's 20,000 units of IT's currency. Questions: (a) Using utility maximization, determine which bundle a consumer from the US vs a consumer from IT will consume. Who is better off?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter3: Preferences And Utility

Section: Chapter Questions

Problem 3.14P

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