Christina consumes two goods, X and Y. Her utility function is given by the expression U = 2 3XY . The current market price for X is RM10, while the market price for Y is RM5. Christina’s current income is RM500.
a. Sketch a set of two indifference curves for Christina in her consumption of X and Y (For Y=2, 3 and 4 units; U1=60 72 units of utility and U2=72 units of utility).
b. Write the expression for Christina’s budget constraint. Graph the budget constraint and determine its slope.
c. Determine the X, Y combination which maximizes Christina’s utility, given her budget constraint. Show her optimum point on a graph.
d. Calculate the impact on Christina’s optimum market basket of an increase in the price of X to RM15. What would happen to her utility as a result of the price increase?