Question

1. From January 30, 2020 to February 22, 2020, hand sanitizer dollar sales grew by 67% and online sales alone grew by 170%. Weekly Year-Over-Year Dollar Growth for Hand Cleaner Sales in the U.S. % Growth/Decline Week ending 2/1/20 100 80 Hand Sanitizer 60 Hand Wipes Week ending Week ending 40 11/23/19 12/28/19 20 0 (20) (40) Source: The NPD Group/Weekly Retail Tracking Service/ 26 weeks ending February 22, 2020 Suppose John is shopping and has $25 to spend on hand sanitizer. He can go with Germ-X (G) at $1.25 per fluid ounce (P = 1.25), or he can purchase Purell (P) at $1 per fluid Ounce (pp = 1). His utility function for the two different hand sanitizers is as follows: U=G+1.1P where G and P are measured in fluid Ounces. (a) (21 points) Write out John's budget constraint. (b) (14 points) What kind of relationship does this utility function represent? Provide another ex- ample of this relationship

Answer 1

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53 that Sility U - G+ 1.IP a) John's budget constraint! Paa + Pp P = M. - 1.25 G + P = 25 Utility function represents G and P are perfect substitutes and that John is only hand sanitizer Concerned about total amount of and 2 not the brand. * Another example is & utility functie including Red and Black pencil. UIR, B) = RAB c) John's problem is to maximize utility ginen budget constraint. Max U=G+liP subject to subject to 1 25 G+P=25. ve d. MRS = Pa Pp At optimal level MRS = Jul24 -0.91 Julap Po 125 Pe Since MRS L Pelle There are John will consume G=0 = 25 (G, P) = (0,25) is optimal consumption bundle