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In the town of Glenbrook, the residents consume only bread (B) and milk (M). The utility function for a typical resident is given by =
In the town of Glenbrook, the residents consume only bread (B) and milk (M). The utility function for a typical resident is given by = . In 2020, the price of bread in Glenbrook was $2 each and milk was also $2 per unit. The typical resident consumed 50 units of bread and 50 units of milk. In 2021, due to a grain shortage, bread prices rose to $5 per unit, but the price of milk remained unchanged. At these new prices, the typical Glenbrook resident consumed 20 units of bread and 80 units of milk. Analyze the situation in Glenbrook between 2020 and 2021, and choose the correct statement regarding the utility and real income changes for a typical resident: A) The utility for the typical Glenbrook resident increased from 2020 to 2021 due to higher milk consumption. B) Using 2020 prices, a calculation would show a decrease in real income due to higher prices of bread. C) Using 2021 prices, it would appear that real income increased because the resident consumed more milk, which retained its price. D) The ability of these indexes to measure changes in real income is limited because they do not
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