Mr Macleod likes to drink wine. He has the option to consume

QUESTION

Mr Macleod likes to drink wine. He has the option to consume two different products, 1 liter ofred wine (X) or 1.6 liters of white wine (Y). X and Y are perfect substitutes. Each liter of winegives Mr Macleod 1 unit of utility.a) Write Mr Macleod utility function.b) Suppose that Px=5. Calculate the Marshallian demand for Y. Draw a graph for this demand(Y as function of Py).c) Now suppose that initially Px=5 and Py=10. But then the price of y changes to $7. Calculatethe total change in demand for y. Explain your result.

ANSWER:

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