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Consumer optimal consumption bundle

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Reference no: EM131433774

Consider the utility function u(x, y) = 2 ln x + ln y. Initially,the prices are px = $2/unit and py = $1/unit. The consumer has an income of $18. Illustrate your answers with graphs.

  • Derive the consumer's optimal consumption bundle
  • Now suppose the price of good x increases to pr = $3/unit.What is the new optimal consumption bundle?
  • Calculate the substitution effect and the income effect.Illustrate it on a graph.

Reference no: EM131433774

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