What can be said about the cross-price elasticity of food

Reference no: EM13218282

Suppose a consumer purchases only two goods %u2013 food and clothing. Her preferences between two goods can be represented by the following utility function $U(x,y)=x^{\alpha}y^{1-\alpha}$

where 0 <a < 1, x denotes the amount of food consumed, and y denotes the amount ofclothing consumed. Her exogenously given monthly income is I dollars. The currentmarket price of food is Px and clothing is Py. Set up the consumer's utility maximization problem. Using the Lagrangian Multiplier method, solve the consumer%u2019s utility maximization problem to derive the consumer's demand curves for both food and clothing as a function of prices and income. (with steps please). Is clothing a normal good? Explain. What can be said about the cross-price elasticity of food with respect to the price of clothing

Reference no: EM13218282

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