A Consumier s utility is given With marginal utiities being M 0X Prices are Px = 4 and Py = 8. Consumer's income is I = 120. The optimal bundle for this consumer has units of X and units of Y. Then, price of X changes to Px = 1. Now the optimal bundle for this consumer has units of X and units of Y. If the consumer wanted to achieve the same level of utility under the new prices as they had under the old prices, the optimal bundle would have units of X and units of Y. (Hint: this is the decomposition bundle) The substitution effect of this price change is units of + and the income effect is units of

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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A consumer's utility is given by U =Y+/X,with marginal utilities being MUx = , and MUy = 1.
Prices are Px = 4 and Py = 8. Consumer's income is I = 120.
The optimal bundle for this consumer has
units of X and
units of Y.
Then, price of X changes to Px = 1. Now the optimal bundle for this consumer has
units of X and
units of Y.
If the consumer wanted to achieve the same level of utility under the new prices as they had under the old prices, the optimal bundle would have
units of X and
units of Y. (Hint: this is the decomposition bundle)
The substitution effect of this price change is
units of
+ and the income effect is
units of
Transcribed Image Text:A consumer's utility is given by U =Y+/X,with marginal utilities being MUx = , and MUy = 1. Prices are Px = 4 and Py = 8. Consumer's income is I = 120. The optimal bundle for this consumer has units of X and units of Y. Then, price of X changes to Px = 1. Now the optimal bundle for this consumer has units of X and units of Y. If the consumer wanted to achieve the same level of utility under the new prices as they had under the old prices, the optimal bundle would have units of X and units of Y. (Hint: this is the decomposition bundle) The substitution effect of this price change is units of + and the income effect is units of
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