Joaquin consumes pizza and beer. His utility function is where P is the number of pizzas and B is the number of glasses of beer. Joaquin has $30, and he plans to spend all of it on pizza and beer today. The price of one pizza is $10, and the price of beer is $3 per glass. Joaquin is allowed to purchase fractions of a pizza by buying individual slices at the same average price (thus, one quarter of a pizza would cost $2.50). Suppose the price of beer decreases to $2. The substitution effect is to decrease pizza consumption by ____ pizzas and increase beer consumption by ____ beers.

Question

Joaquin consumes pizza and beer. His utility function is  where P is the number of pizzas and B is the number of glasses of beer. Joaquin has $30, and he plans to spend all of it on pizza and beer today. The price of one pizza is $10, and the price of beer is $3 per glass. Joaquin is allowed to purchase fractions of a pizza by buying individual slices at the same average price (thus, one quarter of a pizza would cost $2.50). Suppose the price of beer decreases to $2. The substitution effect is to decrease pizza consumption by ____ pizzas and increase beer consumption by ____ beers.

Quizplus · Accepted Answer

The Answer of Joaquin consumes pizza and beer. His utility function is  where P is the number of pizzas and B is the number of glasses of beer. Joaquin has $30, and he plans to spend all of it on pizza and beer today. The price of one pizza is $10, and the price of beer is $3 per glass. Joaquin is allowed to purchase fractions of a pizza by buying individual slices at the same average price (thus, one quarter of a pizza would cost $2.50). Suppose the price of beer decreases to $2. The substitution effect is to decrease pizza consumption by ____ pizzas and increase beer consumption by ____ beers.

Joaquin Consumes Pizza and Beer