Question
Daniel's marginal rate of substitution is given by MRS=Y/3X, and he has a budget constraint M=PxX +PyY, where M=20, Px=2, and Py=5. When Daniel's income
Daniel's marginal rate of substitution is given by MRS=Y/3X, and he has a budget constraint M=PxX +PyY, where M=20, Px=2, and Py=5. When Daniel's income rises by 20%, his demand for cabbage fell by 40%.
a) Calculate Daniel's income elasticity of demand for cabbage and categorize cabbage as a normal or inferior good from his perspective.
b) What is Daniel's optimal choice of X and Y?
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Principles of Economics
Authors: Gregory Mankiw
7th edition
128516587X, 978-1285165875
