The document describes a scenario where an individual with income of $1500 can choose between goods x and y, which have prices of $20 and $10 respectively. It asks how much of each good the individual would buy to maximize utility under two different utility functions: (1) u(x,y)=3x+2y, and (2) u(x,y)=min(3x,2y). It also asks how the individual's choices and utility would change if the price of x or y increased, keeping all other factors the same.
#2. Consider an individual making choices over two goods, x and y wi.pdf
1. #2. Consider an individual making choices over two goods, x and y with prices px=20 and
py=10, and who has income I=1500 for both of the following parts: (a) 8 marks. If the
individual's preferences can be represented by the utility function u(x,y)=3x+2y, how much of
each good does the individual buy in order to maximize his/her utility and what is his/her utility
level? If px increases to $30 (all other things staying the same), what are the individual's new
utility maximizing choices and what is his/her new utility level? Explain. (b) 7 marks. If the
individual's preferences can be represented by the utility function u(x,y)=min(3x,2y), how much
of each good does the individual buy in order to maximize his/her utility and what is his/her
utility level? If py increases to $30 (all other things staying the same), what are the individual's
new utility maximizing choices and what is his/her new utility level? Explain.
