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Sat 14 Nov, 2015 03:25 pm
Hi!
Could someone help me answer the following questions? I do have the solutions to them, but I don't understand how to solve them. Thank you very much in advance!
Question 1)
Anna and Bertus are faced with the same market prices for food (F) and clothing (C). The utility function of Anna is U(F, C) = F + C and the utility function of Bertus is U(F, C) = 2F + 2C. The income
of Anna is twice as high as the income of Bertus. Both maximize their utility. What can we say about their consumption?
1. Anna will consume twice as much food and clothing as Bertus
2. Anna will consume less food and clothing than Bertus
3. The consumption of Anna and Bertus will be identical
Question 2)
Boris has the utility function U(X,Y) = X+2Y and an income 20. The price of Y is 4. What is
his price elasticity of demand for X, when the price of X is less than 2?
1. -1/2
2. -1
3. -2