1. [10 Points] The preferences of a consumer are represented by the following utility function: U = x1x2. If income is 100 and p1 = p2 = 1, a) What is the optimal bundle? b) If p2 = 4, what is the new optimal bundle? c) Decompose the price effect into income and substitution effect. d) Provide a graphical representation of your results.
1. [10 Points] The preferences of a consumer are represented by the following utility function: U = x1x2. If income is 100 and p1 = p2 = 1, a) What is the optimal bundle? b) If p2 = 4, what is the new optimal bundle? c) Decompose the price effect into income and substitution effect. d) Provide a graphical representation of your results.
Chapter1: Making Economics Decisions
Section: Chapter Questions
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![1. [10 Points] The preferences of a consumer are represented by the following utility function:
U = x1x2. If income is 100 and p1 = p2 = 1,
a) What is the optimal bundle?
b) If p2 = 4, what is the new optimal bundle?
c) Decompose the price effect into income and substitution effect.
d) Provide a graphical representation of your results.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fada6daef-6502-4aeb-bf38-892ea8bf2048%2F7089bda7-f97a-4515-be3c-e897f372eea0%2Ff56i0il_processed.jpeg&w=3840&q=75)
Transcribed Image Text:1. [10 Points] The preferences of a consumer are represented by the following utility function:
U = x1x2. If income is 100 and p1 = p2 = 1,
a) What is the optimal bundle?
b) If p2 = 4, what is the new optimal bundle?
c) Decompose the price effect into income and substitution effect.
d) Provide a graphical representation of your results.
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