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# Consumer Spending and Consumption

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A consumer must spend all of her income on two goods (X and Y). In each of the following scenario, indicate whether the equilibrium consumption of goods X and Y will increase or decrease. Assume good X is a normal good and good Y is an inferior good.

a. Income doubles
b. Income quadruples and all price double
c. Income and all prices quadruples
d. Income is halved and all prices double

https://brainmass.com/economics/managerial-economics/consumer-spending-consumption-584077

#### Solution Preview

A consumer must spend all of her income on two goods (X and Y). In each of the following scenario, indicate whether the equilibrium consumption of goods X and Y will increase or decrease. Assume good X is a normal good and good Y is an inferior good.

a. Income doubles

Consumption of good X will INCREASE and consumption of good Y will DECREASE.
Reason: This is because when ...

#### Solution Summary

A consumer must spend all of her income on two goods (X and Y). In each of the following scenario, indicate whether the equilibrium consumption of goods X and Y will increase or decrease. Assume good X is a normal good and good Y is an inferior good.

a. Income doubles
b. Income quadruples and all price double
c. Income and all prices quadruples
d. Income is halved and all prices double

\$2.19

## Find the optimal bundles of consumption.

Assume that an individual consumes two goods, X and Y. The total utility of each good is independent of the rate of consumption of the other good.

The price of X and Y are \$40 and \$60 respectively. Use the following table of total utilities to answer the following questions.

Good Total Utility of X Total Utility of Y
1 20 45
2 38 78
3 54 108
4 68 135
5 80 159
6 90 180

a. The marginal utility of the fourth unit of Y is _.
b. The marginal utility of the fifth unit of X is _.
c. The marginal utility per dollar spent on the third unit of X is _.
d. The marginal utility per dollar spent on the second unit of Y is _.
e. If the consumer has \$420 to spend, _ unit of X and _ units of Y maximize utility subject to the budget constraint. Explain.
f. If the consumer has \$220 to spend, _ units of X and _ units of Y maximize utility subject to the budget constraint. Explain.

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