PROBLEM (7) A consumer with I dollars budget has the utility u(x,y) = x(y+1) over amounts of cake (x) and ice cream (y) she consumes. The prices are px, py respectively. (a) Derive her demand for cake (x), as a function of prices p., py and her budget I. (b) Looking at the demand function in (a), is cake a normal good or an inferior good? Are cake and ice cream complements or substitutes? (c) Calculate the (i) (own) price, (ii) income, (iii) cross-price elasticity of demand for cake at the point where I = 80, px=10, py=20..

PROBLEM (7) A consumer with I dollars budget has the utility u(x,y) = x(y+1) over amounts of cake (x) and ice cream (y) she consumes. The prices are px, py respectively. (a) Derive her demand for cake (x), as a function of prices p., py and her budget I. (b) Looking at the demand function in (a), is cake a normal good or an inferior good? Are cake and ice cream complements or substitutes? (c) Calculate the (i) (own) price, (ii) income, (iii) cross-price elasticity of demand for cake at the point where I = 80, px=10, py=20..

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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7. Suppose U = x₁x2 and the budget constraint is given as x₁ + 1 = B, solve for x and 1-α 8. Suppose U = xx and our budget is given as p₁x₁+P2x2 = m, where m is our income. Solve for solve for x and x₂. 9. Suppose now we want to minimize our expenditure while achieving a certain amount of utility. So say our budget is given as P₁x₁ + P2x2, which we want to minimize, while our utility x and x = u, where u is the level of utility we would like to achieve. Solve for x and x₂.
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