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.
Definitions:
Unsystematic Risk
The portion of total risk that is specific to a single investment or to a small group of investments, also known as idiosyncratic or specific risk, which can be mitigated through diversification.
Bankruptcy
A legal process in which individuals or businesses unable to meet their financial obligations seek relief from some or all of their debts.
Par-Value Bond
A bond that is issued and redeemed at its face value, which is the amount paid to the bondholder at maturity.
Coupon Rate
The annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity.
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