Once again im stuck with answering this question. Any kind of help would be much appreciated
David is confused. He has a limited income that he must allocate between his two favourite goods, A and B. Davidís utility function for these goods is given by:
The price of good A is currently $6 and the price of B is currently $4.
a) Davidís income is equal to $36. How much of A and B will he consume? Explain and carefully demonstrate Davidís optimal choice on a graph.
b) Suppose that price of good B increases from $4 to $5. What is the total effect of this price change on Davisís demand for goods A and B? What are the corresponding income and substitution effects? Explain and demonstrate your answer on a graph
Thanks heaps guys!