PROBLEM (2) Ice cream and cakes are perfect substitutes for a child, and 2 units of ice cream is always worth 3 units of cakes (however many ice creams or cakes she might have, she would be willing to give up 2 ice creams to get 3 more cakes to keep the same utility level). (a) Write down a utility function u(x,y) that represents the child's preferences, where x is the number of ice creams and y is the number of cakes she has. (b) If the prices are px = 8 and px=5, and she has $140 to spend on the two goods this summer, what is her optimal bundle? (c) If the price of ice creams decreases slightly, down to px = 7, what happens to her optimal bundle in this case? Did it change "slightly" compared to (b)?
PROBLEM (2) Ice cream and cakes are perfect substitutes for a child, and 2 units of ice cream is always worth 3 units of cakes (however many ice creams or cakes she might have, she would be willing to give up 2 ice creams to get 3 more cakes to keep the same utility level). (a) Write down a utility function u(x,y) that represents the child's preferences, where x is the number of ice creams and y is the number of cakes she has. (b) If the prices are px = 8 and px=5, and she has $140 to spend on the two goods this summer, what is her optimal bundle? (c) If the price of ice creams decreases slightly, down to px = 7, what happens to her optimal bundle in this case? Did it change "slightly" compared to (b)?
Economics (MindTap Course List)
13th Edition
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter20: Consumer Choice: Maximizing Utility And Behavioral Economics
Section: Chapter Questions
Problem 5WNG
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![PROBLEM (2) Ice cream and cakes are perfect substitutes for a child, and 2 units of ice cream is always worth
3 units of cakes (however many ice creams or cakes she might have, she would be willing to give up 2 ice
creams to get 3 more cakes to keep the same utility level).
(a) Write down a utility function u(x,y) that represents the child's preferences, where x is the number of ice
creams and y is the number of cakes she has.
(b) If the prices are px = 8 and py=5, and she has $140 to spend on the two goods this summer, what is her
optimal bundle?
(c) If the price of ice creams decreases slightly, down to px= 7, what happens to her optimal bundle in this
case? Did it change "slightly" compared to (b)?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F153d0e2b-aaed-4e5d-a2be-c242f81c92fa%2F375ed80e-acf6-478d-84ca-024363564d18%2Fkukbmpg_processed.png&w=3840&q=75)
Transcribed Image Text:PROBLEM (2) Ice cream and cakes are perfect substitutes for a child, and 2 units of ice cream is always worth
3 units of cakes (however many ice creams or cakes she might have, she would be willing to give up 2 ice
creams to get 3 more cakes to keep the same utility level).
(a) Write down a utility function u(x,y) that represents the child's preferences, where x is the number of ice
creams and y is the number of cakes she has.
(b) If the prices are px = 8 and py=5, and she has $140 to spend on the two goods this summer, what is her
optimal bundle?
(c) If the price of ice creams decreases slightly, down to px= 7, what happens to her optimal bundle in this
case? Did it change "slightly" compared to (b)?
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