Question: can you answer this for me please? 5) Sandra's preferences over consumption bundles (x,y) are summarized by the following utility function: u (x1,x2)=16x2x2+4y, where x
5) Sandra's preferences over consumption bundles (x,y) are summarized by the following utility function: u (x1,x2)=16x2x2+4y, where x is the amount of good x that Sandra consumes and y is the amount of good y that Sandra consumes. Let px and py be the prices of goods x and y, respectively. Let m be Sandra's income. Sandra's goal is to maximize her utility subject to her budget constraint. [40 marks] a. Find an algebraic expression for Sandra's marginal rate of substitution between goods x and y. Show your work. In addition, give a concise explanation of the meaning of the marginal rate of substitution. AY022/21 Semste b. Suppose that ps=py=2 and m=24. Use your answer from part (a) to determine Sandra's optimal : consumption bundle, Show your work, c. Suppose now that pr increases to 6, while p, and m remain the same. What are Sandra's optimal choices for x and y in this case? Is Sandra better or worse off than she was in part (b)? Explain. d. How much extra income must Sandra be given in order to compensate her for the increase in the price of good x in part (c)? Explain
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
