Carina buys two goods, food Fand clothing C, with the utility function U= FC+ F. Her marginal utility of food is MUF = C+ 1 and her marginal utility of clothing is MUC = F. She has an income of 20. The price of clothing is 4. a) Her demand for food is represented by F = 20/Pf , where P is price for Food. True/False. b) Calculate the income effects on Carina's consumption of food when the price of food rises from 1 to 4. c) Calculate the substitution effects on Carina's consumption of food when the price of food rises from 1 to 4. d) Determine the numerical size of the compensating variation (in monetary terms) associated with the increase in the price of food from 1 to 4.

Carina buys two goods, food Fand clothing C, with the utility function U= FC+ F. Her marginal utility of food is MUF = C+ 1 and her marginal utility of clothing is MUC = F. She has an income of 20. The price of clothing is 4. a) Her demand for food is represented by F = 20/Pf , where P is price for Food. True/False. b) Calculate the income effects on Carina's consumption of food when the price of food rises from 1 to 4. c) Calculate the substitution effects on Carina's consumption of food when the price of food rises from 1 to 4. d) Determine the numerical size of the compensating variation (in monetary terms) associated with the increase in the price of food from 1 to 4.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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