- 2 Suppose There Are Only Two Goods X And Y Betty S Preferences For X And Y Can Be Represented By The Utility Function 1 (85.92 KiB) Viewed 35 times
, π¦ 2020 )? (10)
b. Suppose in the following year, 2021, the price of x is $24,
and the price of y is $10. Inflation as measured by the Consumer
Price Index (CPI), measures the percentage increase in the cost of
a fixed basket of goods over time, (π₯Μ , π¦Μ ). Let the fixed basket
of goods be the 2020 amounts of x and y from part a): (π₯Μ , π¦Μ ) = (π₯
2020 , π¦ 2020 ). What is the 2021 CPI inflation ie the percentage
increase in the cost of the basket of goods over the year? (4)
c. If Betty has a government pension that increases her income
in 2021 in percentage terms by the CPI inflation in part b), in
2021 would she be better off, worse off, or just the same as she
was in 2020 (part a)? Show your work. (10)
2. Suppose there are only two goods, x and y. Betty's preferences for x and y can be represented by the utility function U(x, y) = (5x + 17) . In 2020, the price of x is $12 per unit and the price of y is $6 per unit. Betty's 2020 income is $576. + a. How many units of x and y will Betty consume in 2020, (x2020, y2020)? (10) b. Suppose in the following year, 2021, the price of x is $24, and the price of y is $10. Inflation as measured by the Consumer Price Index (CPI), measures the percentage increase in the cost of a fixed basket of goods over time, (x,y). Let the fixed basket of goods be the 2020 amounts of x and y from part a): (x,) = (x2020, y2020). What is the 2021 CPI inflation ie the percentage increase in the cost of the basket of goods over the year? (4) C. If Betty has a government pension that increases her income in 2021 in percentage terms by the CPI inflation in part b), in 2021 would she be better off, worse off, or just the same as she was in 2020 (part a)? Show your work. (10)