Joaquin Consumes Pizza and Beer

question 143

Essay

Joaquin consumes pizza and beer. His utility function is
where P is the number of pizzas and B is glasses of beer. Joaquin has $30, and he plans to spend all of it on pizza and beer today.
a. The price of one pizza is $10 and the price of beer is $3 per glass. Solve for Joaquin's optimal bundle.
b. Suppose that during happy hour Joaquin can get beer for $2. Find the substitution effect, the income effect, and the total effect of the decrease in the price.
c. Are pizza and beer normal or inferior goods for Joaquin? Explain.

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