Multiple Choice
Andrew's utility function is U(x1, x2) = 4x21 + x2. Andrew's income is $32, the price of good 1 is $16 per unit, and the price of good 2 is $1 per unit. What happens if Andrew's income increases to $80 and prices do not change? (Hint: Does he have convex preferences?)
A) He will consume 48 more units of good 2 and the same number of units of good 1 as before.
B) He will increase his consumption of both goods.
C) He will reduce his consumption of good 2.
D) He will consume the same number of units of good 2 and 3 more units of good 1 as before.
E) None of the above.
Correct Answer:
Verified
Correct Answer:
Verified
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