Calculate moes utility-maximizing purchases of x and y
Econometrics
Moe’s income is $320 per week and he spends it on two goods, X and Y. Good X costs $8 and good Y costs $4 per unit. His utility function is U = 4.5XY.
(a)Calculate Moe’s utility-maximizing purchases of X and Y.
(b) Calculate Moe’s constrained utility-maximum if his income decreases by $2.00?
(c) If the price of Y doubles, with no change in the price of X, by how much would his income have to increase to enable him to maintain his initial level of utility (as in part (a) above)?
(d) Using your answers from parts (a) and (c), calculate Moe’s arc income elasticity of demand for good X.
