The residents of Uurp consume only pork chops (X)and Coca-Cola (Y). The utility function for the typicalresident of Uurp is given by Utility=

In 2012, the price of pork chops in Uurp was $1 each;Cokes were also $1 each. The typical resident consumed 40 pork chops and 40 Cokes (saving is impossible in Uurp). In 2013, swine fever hit Uurp and pork chop prices rose to $4; the Coke price remainedunchanged. At these new prices, the typical Uurp resident consumed 20 pork chops and 80 Cokes.

a. Show that utility for the typical Uurp resident wasunchanged between the two years.

b. Show that using 2012 prices would show an increase in real income between the two years.

c. Show that using 2013 prices would show a decrease in real income between the years.

d. What do you conclude about the ability of theseindexes to measure changes in real income?

Answer rating: 100% (QA)

d The ability to use the above methods to measure the ... View the full answer