Consumer maximizes utility by selecting a bundle of two good

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The consumer maximizes utility by selecting a bundle of two goods (x and y) that will give the highest level of satisfaction.

a. Show, using indifference curves and a budget constraint the bundle that will maximize utility and explain why that particular bundle is preferred.

b. The price of good x increases. Show graphically and explain the new bundle selected.

c. Show and explain the income and substitution effects associated with the price increase. Assume that good x is an inferior good.

Reference no: EM13984951

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