My utility for cookies c and milk m is ucm c13m23. every, Ask an Expert

Economics

My utility for cookies C and milk M is u(C;M) = C1=3M2=3. Every week I have wealth w = $8 to spend on cookies and milk. Last week, prices were pC = 1; pM = 1; this week there is a big sale on cookies so prices are pC = 1=2; pM = 1.

(a) What was my optimal choice last week?
(b) What is my optimal choice last week?
(c) What is the change in my optimal choice from last week to this week? (Compute changes in both cookies, milk.)
(d) What part of that change is due to the income effect?
(e) What part of that change is due to the substitution effect?

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Macroeconomics, Economics

Category:- Macroeconomics
Reference No.:- M9490344

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