2. A consumer spends her entire income on two goods, r and y. Her preferences are represented by the utility function u(x, y) = 4 ln x + 6 In y. a) Find this consumer's demand for r and y, D-(Pr, Px, I) and D,(Pr, Py, I), as functions of the price of 2, Pz, the price of y, Py, and her income I. b) Suppose that the price of r is p, = $2 per unit, the price of y is Py = $3 per unit, and the consumer's income is I = $10. What bundle (r, y) maximizes the consumer's utility? c) Suppose that the price of r increases to $4 per unit. What bundle (2, y) does the consumer demand now? d) Given the price increase, how much extra income does this consumer need purchase the original bundle following the price change? e) What bundle (r, y) would the consumer choose to consume if she had that additional income, given the new prices? f) Decompose the total changes in the demand for r and y into their substitution and income effects.

2. A consumer spends her entire income on two goods, r and y. Her preferences are represented by the utility function u(x, y) = 4 ln x + 6 In y. a) Find this consumer's demand for r and y, D-(Pr, Px, I) and D,(Pr, Py, I), as functions of the price of 2, Pz, the price of y, Py, and her income I. b) Suppose that the price of r is p, = $2 per unit, the price of y is Py = $3 per unit, and the consumer's income is I = $10. What bundle (r, y) maximizes the consumer's utility? c) Suppose that the price of r increases to $4 per unit. What bundle (2, y) does the consumer demand now? d) Given the price increase, how much extra income does this consumer need purchase the original bundle following the price change? e) What bundle (r, y) would the consumer choose to consume if she had that additional income, given the new prices? f) Decompose the total changes in the demand for r and y into their substitution and income effects.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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