(1) A consumer's utility function is given by u (z_y) := z/2y/2 for any nonnegative z and y, representing the consumption quantities of goods z and y, respectively. Suppose that the price of good y is constantly ¢1, and that the consumer is given income m cedis (and nothing else). Denote p, for the price of good z. Based on the quantity demandi (p., m) for good z. a. Given that p, > 1/(4m), calculate i (P.. m) and i (p.- Py. m), then use the Slutsky equation to deduce what the substitution effect r (P.-y) is equal to. b. Given that p, < 1/(4m), calculate (Pa. m) and i(P.-Py.m), then use the Slutsky equation to deduce what the substitution effect +r (P.-y) is equal to. c. What is your interpretation of the your result in a and b above? (2) Consider the utility function u(z, y) := z/aya/3 for all nonnegative z and y. Given the budget constraint p.r+ Pvy = m, show that the Slutsky equation which is given by dp, Op, 3p

(1) A consumer's utility function is given by u (z_y) := z/2y/2 for any nonnegative z and y, representing the consumption quantities of goods z and y, respectively. Suppose that the price of good y is constantly ¢1, and that the consumer is given income m cedis (and nothing else). Denote p, for the price of good z. Based on the quantity demandi (p., m) for good z. a. Given that p, > 1/(4m), calculate i (P.. m) and i (p.- Py. m), then use the Slutsky equation to deduce what the substitution effect r (P.-y) is equal to. b. Given that p, < 1/(4m), calculate (Pa. m) and i(P.-Py.m), then use the Slutsky equation to deduce what the substitution effect +r (P.-y) is equal to. c. What is your interpretation of the your result in a and b above? (2) Consider the utility function u(z, y) := z/aya/3 for all nonnegative z and y. Given the budget constraint p.r+ Pvy = m, show that the Slutsky equation which is given by dp, Op, 3p

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Chapter1: Making Economics Decisions

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Product and Price Bundling

Product and price bundling is used as a marketing strategy by businesses, where complementary products and services are combined and sold as a package deal. This bundled price is usually less than the total price of the individual products if they were to be sold separately. When bundled and sold, each product is sold at a reduced price. Using a price bundling strategy helps increase the average revenue per user and also increases the engagement with the user. This happens as the perceived value of the bundled products is more than the individual products.

Question

(1) A consumer's utility function is given by
u (z.y) := z/2y/2
for any nonnegative r and y, representing the consumption quantities of goods z and y, respectively.
Suppose that the price of good y is constantly ¢1, and that the consumer is given income m cedis
(and nothing else). Denote p, for the price of good z. Based on the quantity demand i (p., m) for
good z.
a. Given that p, > 1/(4m), calculate i (P., m) and i (Pa- Py, m), then use the Slutsky
equation to deduce what the substitution effect r (P..y) is equal to.
b. Given that p, < 1/(4m), calculate i (P., m) and i (P.- Py: m), then use the Slutsky
equation to deduce what the substitution effect r (P.-y) is equal to.
c. What is your interpretation of the your result in a and b above?
(2) Consider the utility function u(r, y) := r/y2/3 for all nonnegative z and y. Given the budget
constraint par + Pyy = m, show that the Slutsky equation which is given by
3p

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