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Math Help - Challenging Economics Question

  1. #1
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    Red face Challenging Economics Question

    Hi guys,
    Once again im stuck with answering this question. Any kind of help would be much appreciated

    Question:
    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:
    U(A,B)=4A+4B.
    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!
    Last edited by mr fantastic; September 17th 2010 at 03:08 PM. Reason: Edited post title.
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  2. #2
    MHF Contributor
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    these are both standard questions and the relevent methods should be in any undergraduate microeconomics textbook. How far can you get?
    Last edited by SpringFan25; September 18th 2010 at 06:50 AM.
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