Change as income increases in this problem

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Reference no: EM1320627

Q. Assume individuals require a certain level of food (x) to remain alive. Let this amount be given by X0. Once X0 is purchased, individuals obtain utility from food also other goods (y) of the form U(x,y)=(x-x0)^a*Y^b, where a+b=1

a. Elucidate how that if I>Px*X0 then the individual will maximize utility by spending a(I-x*Xo)+Px*X0 on good x also b(I-Px*X0) on good Y, Interpret this result.

b. Elucidate how do the ratios Px*X/I also Py*Y/I change as income increases in this problem?

Reference no: EM1320627

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