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PROBLEM 15! A consumer with I dollars budget has the utility u(x,y) = x(y+1) over amounts of cake (x) and ice cream (y) she consumes.
PROBLEM 15! A consumer with I dollars budget has the utility u(x,y) = x(y+1) over amounts of cake (x) and ice cream (y) she consumes. The prices are px, py respectively. (a) Derive her demand for cake (x), as a function of prices px, py and her budget I. (b) Looking at the demand function in (a), is cake a normal good or an inferior good? Are cake and ice cream complements or substitutes? (c) Calculate the (i) (own) price, (ii) income, (iii) cross- price elasticity of demand for cake at the point where I = so, px=10, py= 20
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