Suppose Anne’s utility function for food (X) and clothing (Y) is given by U (X,Y) =...

Suppose Anne’s utility function for food (X) and clothing (Y) is given by U (X,Y) = 4X1/2 + Y and Anne had budget constraint I = PxX + PyY.

a. Find Anne’s optimal bundle if Px = 4 and Py = 4 and Anne has I = 60.

b. Discuss how the demand for X depends on her income.

c. Suppose now that the price of X increases to 8. Find the SE and IE of the price change.

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Expert Solution

We are given with Anne's utility function and budget constraint. Please refer to the images below for the complete mathematical solution:

Rahul Sunny answered 8 months ago

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