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.

Question

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.

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 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.

Joaquin Consumes Pizza and Beer