Max Has a Utility Function U(x, Y) = 2xy

question 35

Short Answer

Max has a utility function U(x, y) = 2xy + 1. The prices of x and y are both $1 and Max has an income of $20.
a. How much of each good will he demand?
b. A tax is placed on x so that x now costs Max $2 while his income and the price of y stay the same. How much of good x does he now demand?
c. Would Max be as well off as he was before the tax if when the tax was imposed, his income rose by an amount equal to $1 times the answer to part (b)?

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Definitions:

Decomposer

Organisms, such as bacteria and fungi, that break down dead organisms and waste materials, recycling nutrients in ecosystems.

Fungi

A kingdom of complex organisms that obtain nutrients by breaking down organic material, including molds, yeast, and mushrooms.

Secondary Consumer

An organism that primarily eats primary consumers, which are herbivores that eat producers like plants and algae, situating it in the middle level of the food chain.

Organic Compound

A compound consisting of a backbone made up of carbon atoms.