Answer to Question #333913 in Microeconomics for CUI

Question

Suppose tha a consumer’s utility function is U(x,y)= . The price of x goods Px and the price of y goods is Py with both prices positive. The consumer has income M.

(1) Draw the indifference curve and the budget line.

(2) How much x goods and y goods does this consumer pick out to maximize his utility(It is called the consumer equilibrium point) when M=100, Px=10 and Py=5

(3) Derive the individual demand curve.

(4) Is the relation between the two goods, x and y, substitute goods or complimentary goods or independent goods?

(5) Calculate the price elasticity of each goods, the income elasticity of each goods and cross elasticity between two goods?

(6) Based on this indifference curve and budget line, Explain the substitution effect and the income effect when the price of x goods increases.

Answer 1

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