mary select the quantity of two goods x1 ,that she will consume in order to maximize her utilityshe spends her entire weekly income on these two goods....
x1 x2 P1 P2 I
week 1 10 20 2 1 40
week 2 6 14 2 2 40
week 3 20 10 2 2 60
did her utility increase or decrease betw week 1 and week 3? does she consider goods to be normal
pls explain this one .
Please note that the bundle in week 1 is affordable at the prices that prevail in week 3, yet the consumer chooses to consume (20,10) hence the consumer must definitely be better of.
Now compare week 2 and week 3, notice that the prices are the same while income has increased in week 3 and the consumer now chooses more of x1 and less of x2 as compared to week 2. Therefore, x1 must be normal and x2 must be inferior.