There are two goods in the economy: electricity (E) and the composite good (Y). Suppose the government subsidizes the first 20kWh of electricity consumption so that the price of electricity is ¥5 for first 20kWh and ¥10 thereafter, while the price of the composite good remains constant at py = ¥10. (a) Placing the composite good on the vertical axis and electricity on the hor- izontal axis, carefully sketch the budget set for the consumer who has income ¥500. (b) Suppose a consumer's utility function is given by u(E,Y)=EY. Find the consumer's utility maximizing bundle.

There are two goods in the economy: electricity (E) and the composite good (Y). Suppose the government subsidizes the first 20kWh of electricity consumption so that the price of electricity is ¥5 for first 20kWh and ¥10 thereafter, while the price of the composite good remains constant at py = ¥10. (a) Placing the composite good on the vertical axis and electricity on the hor- izontal axis, carefully sketch the budget set for the consumer who has income ¥500. (b) Suppose a consumer's utility function is given by u(E,Y)=EY. Find the consumer's utility maximizing bundle.

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Consumer Choice Theory

Section: Chapter Questions

Problem 19SQ

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