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In: Economics

A consumer purchases two goods, food (F) and clothing (C). Her utility function is given by...

A consumer purchases two goods, food (F) and clothing (C). Her utility function is given by U(F,C)=FC+F. The marginal utilities are MUF=C+1 and MUC=F. The price of food is PF, the price of clothing is PC, and the consumer’s income is W. Suppose W=10, Pf=4 and Pc decreases from 6 to 1.5. What is the income effect of clothing?

Group of answer choices

7/6

3/5

6/7

1

Solutions

Expert Solution

The calculated income effect is 0.5 and the nearest option is 3/5.This variation may be due to the consideration of decimals.

Rahul Sunny answered 2 years ago
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