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In: Economics

Andre buys two goods, food f and clothing c , with the utility function U (...

Andre buys two goods, food f and clothing c , with the utility function U ( f, c ) = f · c + f . His marginal utility of food is M U f = c + 1 and his marginal utility of clothing is M U c = f . He has an income of 20. The price of clothing is 4. a. Derive the equation representing Andre’s demand for food, and draw this demand curve for prices of food ranging between 1 and 6. b. Calculate the income and substitution effects of Andre’s consumption of food when the price of food rises from 1 to 4, and draw a graph illustrating these effects. Your graph need not be exactly to scale, but it should be consistent with the data. c. Calculate the cross-price elasticity of demand for hamburgers and steaks at those prices. Are steaks and hamburgers complements or substitutes? Please show your work

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Rahul Sunny answered 2 years ago
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