Each day Paul, who is in third grade, eats lunch at school. He only likes Twinkies (T) and Orange Slice (S), and these provide him with a utility of Required a) If Twinkies cost $ 0.10 each and Slice costs $ 0.25 per cup, how would Paul spend the $1 his mother gives him in order to maximize his utility? b) Suppose the school try to discourage Twinkle consumption by raising the price to $ 0.40, kindly decompose the total price effect on demand into substitution and income effect. (assume that it is possible to purchase fractional amounts of both goods
Each day Paul, who is in third grade, eats lunch at school. He only likes Twinkies (T) and Orange Slice (S), and these provide him with a utility of Required a) If Twinkies cost $ 0.10 each and Slice costs $ 0.25 per cup, how would Paul spend the $1 his mother gives him in order to maximize his utility? b) Suppose the school try to discourage Twinkle consumption by raising the price to $ 0.40, kindly decompose the total price effect on demand into substitution and income effect. (assume that it is possible to purchase fractional amounts of both goods
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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- Each day Paul, who is in third grade, eats lunch at school. He only likes Twinkies (T) and Orange Slice (S), and these provide him with a utility of
Required a) If Twinkies cost $ 0.10 each and Slice costs $ 0.25 per cup, how would Paul spend the $1 his mother gives him in order to maximize his utility?
b) Suppose the school try to discourage Twinkle consumption by raising the price to $ 0.40, kindly decompose the total price effect on demand into substitution and income effect. (assume that it is possible to purchase fractional amounts of both goods)
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