Bernice has the utility function U(x, y)  min  x, y  .The price of x used to be 3 but rose to 4.The price of y remained at 1.Her income is 12.The price increase was as bad for her as a loss of $3 in income.

Question

Bernice has the utility function U(x, y)   min  x, y  .The price of x used to be 3 but rose to 4.The price of y remained at 1.Her income is 12.The price increase was as bad for her as a loss of $3 in income.

Alanah McClain · Accepted Answer

Final Answer : False, Explanation :  Given Bernice's utility function U(x, y) = min{x, y}, her utility is determined by the lesser of x and y. Initially, with prices of x at 3 and y at 1, and an income of 12, she could afford 4 units of x (12/3) or 12 units of y (12/1), likely choosing a balanced bundle like 3x and 3y to maximize her utility given her utility function. After the price of x increases to 4, she can afford 3 units of x (12/4) or 12 units of y, potentially adjusting to 3x and 3y again or similar, to maintain utility. The price increase affects her ability to purchase x, but since her utility depends on the minimum of x and y, as long as she can afford equal quantities of x and y, her utility doesn't change. The comparison to a loss of $3 in income doesn't directly correlate without further information on how she allocates her budget. The impact of the price increase cannot be equated to a $3 loss in income without analyzing how the change affects her consumption bundle and utility, which depends on her initial consumption choice.

Bernice has the utility function U(x, y) minx, y.The price of x used to be 3 but rose to 4.The price of y remained at 1.Her income is 12.The price increase was as bad for her as a loss of $3 in income.

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