Robin consumes two goods X and Y. His utility function is given by U(x, y) = x*y. The price of Good X used to be $10 per unit but has recently increased to $20 per unit due to the good being taxed. The price of Good Y has remained unchanged at $20 per unit. Robin has $2000 to spend. Suppose the government wants to give Robin enough money so that he can still consume the amount of X and Y that he was consuming before the price change. Which of the following statements is CORRECT? O At the earlier prices, Robin would consume 75 units of X and 100 units of Y. This bundle now costs $2750. But if the government gave Robin an additional $750 then Robin would prefer to consume 80 units each of X and Y. O At the earlier prices, Robin would consume 50 units of X and 100 units of Y. This bundle now costs $2500. So, the government needs to give Robin an additional $500 to afford the original bundle. But if the government gave Robin an additional $200 then Alex would prefer to consume 100 units each of X and Y. O At the earlier prices, Robin would consume 200 units of X and 50 units of Y. This bundle now costs $3000. So, the government needs to give Robin an additional $1000 to afford the original bundle. But if the government
Robin consumes two goods X and Y. His utility function is given by U(x, y) = x*y. The price of Good X used to be $10 per unit but has recently increased to $20 per unit due to the good being taxed. The price of Good Y has remained unchanged at $20 per unit. Robin has $2000 to spend. Suppose the government wants to give Robin enough money so that he can still consume the amount of X and Y that he was consuming before the price change. Which of the following statements is CORRECT? O At the earlier prices, Robin would consume 75 units of X and 100 units of Y. This bundle now costs $2750. But if the government gave Robin an additional $750 then Robin would prefer to consume 80 units each of X and Y. O At the earlier prices, Robin would consume 50 units of X and 100 units of Y. This bundle now costs $2500. So, the government needs to give Robin an additional $500 to afford the original bundle. But if the government gave Robin an additional $200 then Alex would prefer to consume 100 units each of X and Y. O At the earlier prices, Robin would consume 200 units of X and 50 units of Y. This bundle now costs $3000. So, the government needs to give Robin an additional $1000 to afford the original bundle. But if the government
Chapter3: Preferences And Utility
Section: Chapter Questions
Problem 3.15P
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Transcribed Image Text:Robin consumes two goods X and Y. His utility function is given by U(x, y) = x*y. The price of Good X
used to be $10 per unit but has recently increased to $20 per unit due to the good being taxed. The price
of Good Y has remained unchanged at $20 per unit. Robin has $2000 to spend. Suppose the
government wants to give Robin enough money so that he can still consume the amount of X and Y
that he was consuming before the price change. Which of the following statements is CORRECT?
O At the earlier prices, Robin would consume 75 units of X and 100 units of Y. This bundle now costs $2750. But
if the government gave Robin an additional $750 then Robin would prefer to consume 80 units each of X and
Y.
At the earlier prices, Robin would consume 50 units of X and 100 units of Y. This bundle now costs $2500. So,
the government needs to give Robin an additional $500 to afford the original bundle. But if the government
gave Robin an additional $200 then Alex would prefer to consume 100 units each of X and Y.
O At the earlier prices, Robin would consume 200 units of X and 50 units of Y. This bundle now costs $3000. So,
the government needs to give Robin an additional $1000 to afford the original bundle. But if the government
gave Robin an additional $1000 then Alex would prefer to consume 100 units each of X and Y.
O At the earlier prices, Robin would consume 100 units of X and 50 units of Y. This bundle now costs $3000. So,
the government needs to give Robin an additional $1000 to afford the original bundle. But if the government
gave Robin an additional $1000 then Alex would prefer to consume 75 units each of X and Y.
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