David consumes 2 things gasoline g and bread b davids

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Reference no: EM13378693

David consumes 2 things: gasoline (G) and bread (B). David's utility function is U(G,B) = 10G0.25B0.75.

a. Use the Lagrange method to solve for David's optimal choices of gasoline and bread as a function of the price of gasoline, PG, the price of bread, PB, and his income Y.

b. If the price of gasoline increases, does David reduce his consumption of gasoline?

c. Show how David's change in gasoline consumption due to an increase in the price of gasoline (dg/dp_g) depends on his income.

Note: please use both math and words to explain (its ECN/MAT) class

Reference no: EM13378693

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