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Question: charlotte spends her income of 2400 on clothing good x...

Question details

Charlotte spends her income of $2400 on clothing (good x), and the composite good (good y). The utility Charlotte receives from consuming a basket of clothing and the composite good is

 

U(x,y) = 2√x + (y/300)

 

The corresponding marginal utilities are

 

MUx = 1/√x and MUy = 1/300

 

Question: Find the income and substitution effects for the price increase. Is clothing a normal good?

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