Economics : Micro 4
4th Edition
ISBN: 9781305436855
Author: MCEACHERN
Publisher: CENGAGE L
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Question
Chapter 4, Problem 5.10PA
To determine
Reason behind raising the price in case of market shortage and why would consumer accept it?
Concept Introduction:
Market shortage refers to a situation in which quantity demanded of the good is greater than the quantity supplied.
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The preferences of a consumer are represented by the following utility function:
U = min (×1, 2x2)
If income is 100 and p1=p2=1
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b) If p₁=4, what is the new optimal bundle?
c) If p2=4, what is the new optimal bundle?
d) Decompose the price effect into income and substitution effect and provide a graphical representation of your results.
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