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1. Suppose that an individual has a utility function U(c, h) = ln(c) + h (c represents consumption of a necessity good such as shelter, and h represents health).

a. Find that optimal amount of c and h if the individual's income is 5, the price of c is1 and the price of h is1. (Hint use MRS= pc/ph ).

b. What happens to the consumption of c and h if the individual's income increases to 10. Is health a normal or inferior good, or neither? What about c?

c. Suppose the price of c increases to 2, while income remains constant at 10. What happens to the consumption of c and h? Are c and h substitute goods,complementary goods, or neither?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M938577

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