Suppose Mika has budget of $600 for only two goods, x and y. The price of a Good X is $10 and the price of good Y is $25. Mika’s utility function for Good x and Good y is: UU(xx, yy) = 2xxxx. Suppose the price of a Good X increases to $15. a. What is Mika’s initial basket when the price of a Good X is $10? b. How much utility does this basket generate for Mika? c. What is Mika’s final consumption basket when the price of Good X increases to $15? d. Compute the values for the decomposition basket, B. e. Determine the numerical values of the substitution and income effects and graph your results. f. Is Good X normal or inferior goods for Mika? How do you know?

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Suppose Mika has budget of $600 for only two goods, x and y. The price of a Good X is $10 and
the price of good Y is $25. Mika’s utility function for Good x and Good y is: UU(xx, yy) = 2xxxx.
Suppose the price of a Good X increases to $15.
a. What is Mika’s initial basket when the price of a Good X is $10?
b. How much utility does this basket generate for Mika?
c. What is Mika’s final consumption basket when the price of Good X increases to $15?
d. Compute the values for the decomposition basket, B.
e. Determine the numerical values of the substitution and income effects and graph your
results.
f. Is Good X normal or inferior goods for Mika? How do you know?

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