Max has utility function u(x,y) = x + y. Let the price of good x...
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Max has utility function u(x,y) = x + y. Let the price of good x be $2 and rice of good y be $2y. Further assume that Douglas has $480 to spend on these two goods. In the questions below, give your answers to two decimal places.
How much of good x does Douglas demand?
Now suppose that the price of good x decreases to $1.00. What is the income effect of this price change on the demand for x?
What is the substitution effect of this price change?
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