Suppose Mika has budget of $600 for only two goods, x and y. The price of a Good X is $10 and the price of good Y is $25. Mika's utility function for Good x and Good y is: U(x,y) = 2xy. Suppose the price of a Good X increases to $15.
Suppose Mika has budget of $600 for only two goods, x and y. The price of a Good X is $10 and the price of good Y is $25. Mika's utility function for Good x and Good y is: U(x,y) = 2xy. Suppose the price of a Good X increases to $15.
Chapter7: Consumer Choice: Maximizing Utility And Behavioral Economics
Section: Chapter Questions
Problem 5QP
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Question
a. What is Mika’s initial basket when the price of a Good X is $10?
b. How much utility does this basket generate for Mika?
c. What is Mika’s final consumption basket when the price of Good X increases to $15?
d. Compute the values for the decomposition basket, B.
e. Determine the numerical values of the substitution and income effects and graph your
results.
f. Is Good X normal or inferior goods for Mika? How do you know?
instructions: answer question d,e and f only
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