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.

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 1 year ago

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