Question: Sam's utility function is U(x, y) = 2x + y. His weekly income is $200 and the price of good x is 4. Currently, he

Sam's utility function is U(x, y) = 2x + y. His weekly income is $200 and the price of

good x is 4. Currently, he does not consume any y (that is, his optimal bundle involves no

consumption of y).

(a) Knowing Sam's optimal choice, what can you say about the current price of good y?

(b) Sam has received an invitation to join a club devoted to consumption of good y. If

he joins the club, he could buy y for $1 a unit. Which is the highest amount Sam is

willing to pay (as a membership fee) to join the club?

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