Petrol demand function and food demand function

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Reference no: EM131097951

Suppose that Jenna’s preferences over baskets containing petrol (good x), and food (good y), are described by the utility function U(x, y) = xy + 100y. The marginal utilities for this function are, MUx = y and MUy = x + 100. Use Px to represent the price of petrol, Py to represent the price of food, and I to represent Jenna’s income.

Question 1: Find Jenna’s petrol demand function, and Sally’s food demand function.

Question 2: From Jenna’s perspective, is food a normal good, an inferior good, or neither normal nor inferior? Briefly explain with reference to your answer to question 1.

Question 3: Suppose that the price of petrol is $2 per litre, the price of food is $5 per kilogram, and Jenna’s income is $400. What quantities of food and petrol does Jenna consume? What level of utility does Jenna receive from this consumption basket?

Reference no: EM131097951

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