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Jack, our representative consumer, consumes varying amounts of beef and rice. Assume that B = quantity...

Jack, our representative consumer, consumes varying amounts of beef and rice. Assume that B = quantity of beef consumed, and that R = quantity of rice consumed. Jack’s utility function is given as: ?(?,?) = √(?.?)

a. Assume further that the price of beef is $4, the price of rice is $2, and that Jack’s income is $200. How much of each product should he purchase?

b. How are the quantities calculated in (a) above affected when the price of rice increases from $2 to $4? Calculate the substitution and income effects for rice?

c. Is rice a normal good or an inferior good? Explain.

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Rahul Sunny answered 2 years ago
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