Consider an individual making choices over two goods, x and y with prices px = 2 and py = 6, and who has income I = 50.
(a) If the individual's preferences can be represented by the utility function u(x; y) = 2x+5y how much of each good does the individual buy in order to maximize his/her utility and what is his/her utility level? If py decreases to $4 (all other things staying the same), what are the individual's new utility-maximizing choices, and what is his/her new utility level? Explain.
(b) If the individual's preferences can be represented by the utility function u(x; y) = min( x2 ; y), how much of each good does the individual buy in order to maximize his/her utility, and what is his/her utility level? If py decreases to $4 (all other things staying the same), what are the individual's new utility-maximizing choices, and what is his/her new utility level? Explain.
Consider an individual making choices over two goods, x and y with prices px = 2 and py = 6, and who has income I = 50.
(a) If the individual's preferences can be represented by the utility function u(x; y) = 2x+5y how much of each good does the individual buy in order to maximize his/her utility and what is his/her utility level? If py decreases to $4 (all other things staying the same), what are the individual's new utility-maximizing choices, and what is his/her new utility level? Explain.
(b) If the individual's preferences can be represented by the utility function u(x; y) = min( x2 ; y), how much of each good does the individual buy in order to maximize his/her utility, and what is his/her utility level? If py decreases to $4 (all other things staying the same), what are the individual's new utility-maximizing choices, and what is his/her new utility level? Explain.
