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Question 3 Liam has a utility function U(x1, x2) = min(2x1, x2). Liam consumes two goods: bicycles (x1) and bicycle tires (x2). For every bicycle he owns, he needs exactly two tires. The price of a bicycle is $100, and the price of a tire is $30. Liam's monthly budget is $300. A) How many bicycles and tires will Liam demand? Restrictions: Now, assume that due to new import restrictions, the price of a tire increases to $50, while the price of bicycles and Liam's income remain unchanged. B) How many bicycles and tires will Liam demand now? C) How does the price increase affect Liam's ability to satisfy his consumption needs? Is he worse off compared to before the restriction?

Question 3 Liam has a utility function U(x1, x2) = min(2x1, x2). Liam consumes two goods: bicycles (x1) and bicycle tires (x2). For every bicycle he owns, he needs exactly two tires. The price of a bicycle is $100, and the price of a tire is $30. Liam's monthly budget is $300. A) How many bicycles and tires will Liam demand? Restrictions: Now, assume that due to new import restrictions, the price of a tire increases to $50, while the price of bicycles and Liam's income remain unchanged. B) How many bicycles and tires will Liam demand now? C) How does the price increase affect Liam's ability to satisfy his consumption needs? Is he worse off compared to before the restriction?

Exploring Economics
Exploring Economics
8th Edition
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter10: Consumer Choice Theory
Section: Chapter Questions
Problem 3P
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Question 3 Liam has a utility function U(x1, x2) = min(2x1, x2). Liam consumes two goods: bicycles (x1) and bicycle tires (x2). For every bicycle he owns, he needs exactly two tires. The price of a bicycle is $100, and the price of a tire is $30. Liam's monthly budget is $300. A) How many bicycles and tires will Liam demand? Restrictions: Now, assume that due to new import restrictions, the price of a tire increases to $50, while the price of bicycles and Liam's income remain unchanged. B) How many bicycles and tires will Liam demand now? C) How does the price increase affect Liam's ability to satisfy his consumption needs? Is he worse off compared to before the restriction?
Transcribed Image Text:Question 3 Liam has a utility function U(x1, x2) = min(2x1, x2). Liam consumes two goods: bicycles (x1) and bicycle tires (x2). For every bicycle he owns, he needs exactly two tires. The price of a bicycle is $100, and the price of a tire is $30. Liam's monthly budget is $300. A) How many bicycles and tires will Liam demand? Restrictions: Now, assume that due to new import restrictions, the price of a tire increases to $50, while the price of bicycles and Liam's income remain unchanged. B) How many bicycles and tires will Liam demand now? C) How does the price increase affect Liam's ability to satisfy his consumption needs? Is he worse off compared to before the restriction?
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