Question
A student at on financial aid consumes Books (q1) and Food (q2). Her preferences are represented by the utility function: (!,)=! She has an initial
A student at on financial aid consumes Books (q1) and Food (q2). Her preferences are represented by the utility function: (!,")=!"" She has an initial budget of $300 and the price of books is $10 and the price of food is $5. 1. Find the student's original consumption bundle . 2. Using the prices given above, derive the consumer's Engel Curve (equation) for books. Are books a Normal or Inferior Good? 3. Suppose the price of food rises to $10. How much additional income would she need to be able to afford her original consumption bundle with the new price of food? 4. Suppose that her budget is increased by the dollar amount you found in the question above. What bundle will she consume with the higher food price and with that larger budget (round to nearest 1/10th of a unit)? 5. Will she be better off, worse off, or equally well off at the new price and budget compared to with her original budget and prices?
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