consumer’s preferences over two goods x and y are given by the utility function U(x, y) = xαyβ with α, β > 0. The prices of the goods are px = 2 and py = 4. The consumer has an income of I > 0. (a) For what values of α and β are these utility functions strictly monotone? (b) For what values of α and β will the consumer demand (i.e., Walrasian demand) be more x than y? (c) For what values of α and β are these goods gross substitutes? For what values of α and β are these goods gross complements? Provide a justification for your answer.

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Product and Price Bundling

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