Katie Kwasi's utility function is U(x₁, x₂)= 5(ln x₁)+ x₂.Given her current income and the current relative prices, she consumes 10 units of x₁ and 15 units of x₂.If her income doubles, while prices stay constant, how many units of x₁ will she consume after the change in income? A)10 B)15 C)5 D)20 E)There is not enough information to determine how many.

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Quizplus · Accepted Answer

Katie's utility function suggests that x₁ is a normal good with a logarithmic utility, meaning her consumption of x₁ is not directly proportional to income changes. Therefore, doubling her income does not change her consumption of x₁ from 10 units.

Katie Kwasi's Utility Function Is U(x1, X2)= 5(ln X1)+ X2

Katie Kwasi's Utility Function Is U(x₁, X₂)= 5(ln X₁)+ X₂