- Incorrect Question 2 0 1 Pts Alex Consumes Two Goods X And Y His Utility Function Is Given By U X Y X Y The Price 1 (105.52 KiB) Viewed 61 times
Incorrect Question 2 0/1 pts Alex 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. Alex has $1000 to spend. Suppose the government wants to give Alex 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? At the earlier prices, Alex would consume 20 units of X and 40 units of Y. This bundle now costs $1200. So, the government needs to give Alex an additional $200 to afford the original bundle. But if the government gave Alex an additional $200 then Alex would prefer to consume 30 units each of X and Y. At the earlier prices, Alex would consume 50 units of X and 25 units of Y. This bundle now costs $1500. So, the government needs to give Alex an additional $500 to afford the original bundle. But if the government gave Alex an additional $500 then Alex would prefer to consume 37.5 units each of X and Y. At the earlier prices, Alex would consume 40 units of X and 20 units of Y. This bundle now costs $1200. So, the government needs to give Alex an additional $200 to afford the original bundle. But if the government gave Alex an additional $200 then Alex would prefer to consume 40 units each of X and Y. At the earlier prices, Alex would consume 25 units of X and 50 units of Y. This bundle now costs $1500. But if the government gave Alex an additional $500 then Alex would prefer to consume 40 units each of X and Y.