Optimal consumption bundle before any price change

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Bob’s utility function is given by . 0.5 0.5 U = X Y Bob earns $400. The price of X is $2 and the price of Y is $4. a. What is Bob’s optimal consumption bundle before any price change? b. Suppose the price of X increases to $4. What does Bob consume after this price change? c. Find the substitution effect, the income effect and the total effect from the price change (for good X). Based on your answer, is X a normal or an inferior good for Bob? d. Draw Bob’s demand curve for good X. Make sure all relevant points are well-labeled.

Reference no: EM13860782

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