A consumer has $400 in income. They consume two goods, X and Y. Use the information below to answer the following questions: U(X,Y) = 2X0.6 y0.4 MUX=1.2X-0.4yo.4 MUy=0.8X0.6y-0.6 Px= $40 Py= $10 1. Write the individual's budget constraint: 2. Calculate the individual's optimal consumption bundle o X* = units Y*= units 3. If the price of Good Y increases to PY = $20, calculate the individual's new optimal consumption bundle o X* = units Y* = units
A consumer has $400 in income. They consume two goods, X and Y. Use the information below to answer the following questions: U(X,Y) = 2X0.6 y0.4 MUX=1.2X-0.4yo.4 MUy=0.8X0.6y-0.6 Px= $40 Py= $10 1. Write the individual's budget constraint: 2. Calculate the individual's optimal consumption bundle o X* = units Y*= units 3. If the price of Good Y increases to PY = $20, calculate the individual's new optimal consumption bundle o X* = units Y* = units
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![A consumer has $400 in income. They consume two goods, X and Y. Use the information below to answer the following questions:
U(X,Y) = 2x0.6y0.4
MUx=1.2X-0.4 yo.4
MUy=0.8x0.6y-0.6
Px= $40
Py= $10
1. Write the individual's budget constraint:
2. Calculate the individual's optimal consumption bundle
o X* =
units
Y*=
units
3. If the price of Good Y increases to PY = $20, calculate the individual's new optimal consumption bundle
o X* =
units
Y* =
units
4. Calculate the total effect of the price change on the optimal quantity of goods X and Y (*HINT* Calculate change the optimal quantities)
o Total Effect on X =
units
o Total Effect on Y =
units](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc316c373-45b0-49f7-b903-7c4ab6c319ca%2F4c8453c6-f61e-4dde-9971-565ac1f96be4%2Fivosrls_processed.png&w=3840&q=75)
Transcribed Image Text:A consumer has $400 in income. They consume two goods, X and Y. Use the information below to answer the following questions:
U(X,Y) = 2x0.6y0.4
MUx=1.2X-0.4 yo.4
MUy=0.8x0.6y-0.6
Px= $40
Py= $10
1. Write the individual's budget constraint:
2. Calculate the individual's optimal consumption bundle
o X* =
units
Y*=
units
3. If the price of Good Y increases to PY = $20, calculate the individual's new optimal consumption bundle
o X* =
units
Y* =
units
4. Calculate the total effect of the price change on the optimal quantity of goods X and Y (*HINT* Calculate change the optimal quantities)
o Total Effect on X =
units
o Total Effect on Y =
units
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