Question

Canan can only be happy if she eats 1 slice of apple pie with 2 scoops of vanilla
ice cream. Canan will simply not eat anything else and she will not consumer apple pie and
ice cream in any other ratio. Suppose that the price of a slice of apple pie is given by ??x = $5
and the price of a scoop of a vanilla ice cream is given by ??y = $2.5. Suppose the amount of
money Canan can spend on these two goods is given by $30.
a. Write down Canan’s consumer problem.
b. Solve Canan’s consumer problem that you wrote down in part a.
c. What is Canan’s utility level when she solves her consumer problem?
d. What is the total effect, substitution effect and income effect of an increase in the price of
vanilla ice cream to $3 per scoop.