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You are a wine collector and have $600 to spend to fill a small wine cellar. You enjoy two vintages in particular a French Bordeux priced at $40 per bottle and a less expensive California blend priced at $8 per bottle. Your utility function is given by U-F67C33. - a. Find your optimal consumption bundle and determine your total utility at this bundle. b. Suppose the price of the French Bordeux drops to $20 per bottle. Find the substitution effect, the income effect, and the total effect of the decrease in the price of the Bordeux on your consumption of both wines. c. Based on your answer to part b, are the wines normal or inferior goods? Explain your answer. You are a wine collector and have $600 to spend to fill a small wine cellar. You enjoy two vintages in particular a French Bordeux priced at $40 per bottle and a less expensive California blend priced at $8 per bottle. Your utility function is given by U-F67C33. - a. Find your optimal consumption bundle and determine your total utility at this bundle. b. Suppose the price of the French Bordeux drops to $20 per bottle. Find the substitution effect, the income effect, and the total effect of the decrease in the price of the Bordeux on your consumption of both wines. c. Based on your answer to part b, are the wines normal or inferior goods? Explain your answer.
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Related Book For
Managerial Accounting Tools for business decision making
ISBN: 978-1118096895
6th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
Posted Date:
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