There two goods, candy and soda, available in arbitrary non-negative quantities (so the consumption set is R2+). A consumer has preferences over consumption bundles that are represented by the following utility function: u(x, y) = −|4 − x| − |4 − y| where x is the quantity of candy (in grams), y is the quantity of soda (in liters), and |.| denotes the absolute value: for any real number r ∈ R, |r| = r if r ≥ 0 −r if r < 0. The consumer has wealth of w > 0 Dirhams. The price of candy is p > 0 Dirhams/gram, and the price of soda is q > 0 Dirhams/liter. (a) Find the demand for candy and soda as a function of wealth w > 0 for the following specific prices, explaining how you arrived at your answers: (i) when p = 1 and q = 2, (ii) when p = 2 and q = 1, (iii) when p = q = 1. For each part (i), (ii) and (iii), illustrate the demand for candy as a function of wealth in an appropriate diagram
There two goods, candy and soda, available in arbitrary non-negative quantities (so the consumption set is R2+). A consumer has preferences over consumption bundles that are represented by the following utility function:
u(x, y) = −|4 − x| − |4 − y|
where x is the quantity of candy (in grams), y is the quantity of soda (in
liters), and |.| denotes the absolute value: for any real number r ∈ R,
|r| = r if r ≥ 0
−r if r < 0.
The consumer has wealth of w > 0 Dirhams. The
(a) Find the
for the following specific prices, explaining how you arrived at your
answers:
(i) when p = 1 and q = 2,
(ii) when p = 2 and q = 1,
(iii) when p = q = 1.
For each part (i), (ii) and (iii), illustrate the demand for candy as a
function of wealth in an appropriate diagram
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