Consider a consumer who is choosing between cake (c) and ice-cream (i). Their utility function is given by u(xc, x¡) = xx². Initially their income is m = 10, and prices are given by pe = 2 and p = 4. а. Solve for the consumer's demand functions for c and i, and calculate their demand at the prices given above. Right before a bank holiday, the price of cake increases to $4. Calculate the consumer's demand at these new prices. b. Calculate the income and substitution effect of this price change on demand for cake. с.

Consider a consumer who is choosing between cake (c) and ice-cream (i). Their utility function is given by u(xc, x¡) = xx². Initially their income is m = 10, and prices are given by pe = 2 and p = 4. а. Solve for the consumer's demand functions for c and i, and calculate their demand at the prices given above. Right before a bank holiday, the price of cake increases to $4. Calculate the consumer's demand at these new prices. b. Calculate the income and substitution effect of this price change on demand for cake. с.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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