Question

Henry consumes two goods, x and y. Good y is sold in an unusual way. There is only one supplier, and the more good y you buy from him, the higher the price you have to pay per unit. In fact y units of good y will cost Henry y square. dollars. Good x is sold in the usual way at a price of 2 dollars per unit.Henry’s income is 20 dollars and his utility function isU(x; y) =x+ 2y.

(a)Sketch Henry’s budget set and shade it in.

(b)Sketch some of his indifference curves and label the point that he chooses.

(c)Calculate the amount of x and the amount of y that Henry demands at these prices and this income.

Answer 1