Question

A consumer has a utility function . The prices of  and  are 3$ and 4$, respectively and his income is 70$. Find the demand bundle at these prices?

Answer 1

Let good 1 be $x$ and good 2 be $y$

The budget constraint will be:

3$x$ +4$y$$\leq$ $\$$ 70

We create a table the table below below that will help us choose the demand bundle for the above constraint.

We then examine the table carefully and look for a bundle of (x, y) that will exhaust the total income of $\$$ 70  .This gives us the demand bundle (x,y) of (10,10)