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Anns utility function over consumption of coffee q and money m is given by (g, m)v()+m where v()-2q. To be able to buy coffe

Note: First solve the problem when the bus ticket is free, and then think what changes when the price is $1. m constant.

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Answer #1

U = 2(q)^(1/2) + m

Where price of money m is 1 and price of coffee q is p

MRS = 1/q^(1/2)

Price ratio is p

At equilibrium

1= p. q^(1/2)

q= 1/p^2

Demand for coffee as a function of p

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