# Utility function from consuming a bundle of goods (X,Y) is given as and Prices are given as =($2,...

## Question:

Utility function from consuming a bundle of goods (X,Y) is given as {eq}U=X^{1/2}Y^{1/2} {/eq} and Prices are given as {eq}P=(P_X, P_Y) {/eq}=($2, $4), and income M=$100

1. Derive the optimum consumption bundle.

2. If prices now change to {eq}P'=(P_X', P_Y') {/eq}=($4, $4). Derive the new optimum consumption bundle, and the substitution effects on the consumption of each goods.

3. Under the new prices, what are the income effects on the consumption of each goods?

4. Graphically show the price, substitution effect and income on the consumption of goods X.

## Utility:

Utility refers to satisfaction of the consumer which he drives by consuming the product. Utility is a state of mind of consumer, when he consumes product with the vision of full utilization of product and income which he spent on that product.

## Answer and Explanation: 1

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Chapter 3 / Lesson 10Learn about marginal utility and how it is calculated. Explore the basics of marginal utility, the marginal utility equation, and how it is applicable in economics.

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