Suppose that a consumer has utility U(X,Y) = 2XY + X and income of $499 to spend on goods X and Y. The initial prices of X and Y are $1 and $2 per unit, respectively. Suppose the price of good X increases to $2 per unit. The total effect on the consumption of goods X and Y is ____ for good X and ____ for good Y.

Question

Quizplus · Accepted Answer

Initially, with $499, if the consumer spends all their income, they could buy 499 units of X if they spent all their money on X ($1/unit), or 249.5 units of Y if they spent all their money on Y ($2/unit). However, when the price of X increases to $2 per unit, the maximum number of units of X that could be bought decreases to 249.5 units if all money is spent on X. This change represents a decrease in the maximum potential consumption of X by 249.5 units (from 499 to 249.5), not exactly 125 units as none of the options perfectly match this calculation. However, the closest option that reflects a decrease in the consumption of good X due to the price increase is option B, indicating a negative effect on the consumption of X. The question seems to imply a simplification or a specific context not fully detailed in the prompt, leading to an approximation or a theoretical scenario rather than a direct calculation from the provided information. The consumption of Y is not directly affected by the price change of X in the options provided, hence the 0 change for Y.

Suppose That a Consumer Has Utility U(X,Y) = 2XY