A consumer has an income of $1,600 to buy two goods: Proteins (X) and Fats (Y)....
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A consumer has an income of $1,600 to buy two goods: Proteins (X) and Fats (Y). The price of X is $8 and the price of Y is $2. The consumer utility function is given by U(X, Y) = 2 * X 1/2 * Y 1/2 You are also told that his marginal utilities are MUX = (YX) 1/2 MUY = (XY) 1/2 1. Find the consumer's budget constraint equation. (1 point) 2. Calculate the optimal quantity of good X and Y for this consumer (Point A). Assume that this consumer changed his behavior such that when he spends all his income on good X he buys only 40 units. 3. Holding everything else constant, calculate the substitution effect (SE) and the income effect (IE) for the change in consumer behavior. Hint: Use the same points A, B, and C as we did in class A consumer has an income of $1,600 to buy two goods: Proteins (X) and Fats (Y). The price of X is $8 and the price of Y is $2. The consumer utility function is given by U(X, Y) = 2 * X 1/2 * Y 1/2 You are also told that his marginal utilities are MUX = (YX) 1/2 MUY = (XY) 1/2 1. Find the consumer's budget constraint equation. (1 point) 2. Calculate the optimal quantity of good X and Y for this consumer (Point A). Assume that this consumer changed his behavior such that when he spends all his income on good X he buys only 40 units. 3. Holding everything else constant, calculate the substitution effect (SE) and the income effect (IE) for the change in consumer behavior. Hint: Use the same points A, B, and C as we did in class
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