# 代写 Price Theory Assignment 1 – Consumer Theory

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• 代写 Price Theory Assignment 1 – Consumer Theory

Price Theory
Assignment 1 – Consumer Theory
Suppose that Sally’s preferences over baskets containing food (good x), and clothing (good
y), are described by the utility function U(x,y) =
√ x+y. Sally’s corresponding marginal
utilities are,
MU x =
1
2 √ x
and MU y = 1.
Use P x to represent the price of food, P y to represent the price of clothing, and I to
represent Sally’s income.
Question 1: Find Sally’s food demand function, and Sally’s clothing demand function.
For the purposes of this question you should assume that I/P y ≥ P y /4P x . (7 Marks)
Question 2: Describe the relationship between Sally’s demand for food and,
(a) Sally’s income;
(b) the price of food;
(c) the price of clothing.

代写 Price Theory Assignment 1 – Consumer Theory
Your answers should reference the demand function that you derived in question 1, and
correctly apply the relevant terminology. You should continue to assume that I/P y ≥
P y /4P x . (6 Marks)
Question 3: Now assume that I/P y < P y /4P x . Find Sally’s food demand function, and
Sally’s clothing demand function. (4 Marks)
Question 4: Suppose that the price of clothing is P y = \$50 per item, and that Sally’s
income is I = \$425. What are the income and substitution effects if the price of food
increases from P x1 = \$5 per meal, to P x2 = \$12.50 per meal? (8 Marks)
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代写 Price Theory Assignment 1 – Consumer Theory