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Pawel spends half of the year working in Britain where he consumes British food q and half of the year in Poland where he consumes Polish food Q. Tn Britain he earns an income sufficient to buy y units of British food and in Poland an income sufficient to buy Y units of Polish food. Entitlements to food in the two countries can be traded at a rate such that consumption of one unit of British food can be exchanged for consumption of P units of Polish food.
(a) Write down an expression for his budget constraint.
(b) Pawel's preferences are captured by the utility function
u(q,Q) =\nq + n\nQ
where a is a preference parameter. Find his uncompensated demand for British and Polish food.
(c) Would his demand for Polish food rise or fall if « were to increase? Explain.
(d) Does his demand for Polish food rise or fall as P rises? Does your answer depend on the incomes in the two countries y and Y? If so, how? Explain.
Does his utility rise or fall as P rises? Does your answer depend on the incomes in the two countries y and V? If so. How? Explain.
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