A consumer with I dollars budget has the utility u(x,y) = x(y+1) over amounts of cake (x) and ice cream (y) she consumes. The prices are px , py respectively.   (a) Derive her demand for cake (x), as a function of prices px , py and her budget I.   (b) Looking at the demand function in (a), is cake a normal good or an inferior good? Are cake and ice cream complements or substitutes?   (c) Calculate the (i) (own) price, (ii) income, (iii) cross- price elasticity of demand for cake at the point where I = 80, px =10, py = 20.

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Form Utility

The term utility in general refers to the satisfaction earned from usage of a particular product or service. Utility always plays an important role because it influences various important elements like demand & thereby the price of the good or service as well. Though utility is not easy to measure, various types of economic models can be used indirectly. There can be various types of utilities like economic utility, marginal utility, cardinal utility, form utility.