Answer to Question #42807 in Microeconomics for Agi
In this question, we wish to analyze the consumer's choice of housing. In particular, we want to compare the impact on utility of a change in the price of housing for a renter and a homeowner. You may assume that all individuals consume two things - housing (H), and a second consumption good (C).
1. (10 points) Write down the renter's problem. Write down the homeowner's problem.
2. (10 points) What happens to the renter's utility when pH , the price of housing, changes? The homeowner's utility? What happens to the renter's optimal consump-tion of H and C? The homeowner's consumption?
2. The renter's utility changes indirectly when pH , the price of housing, changes. The homeowner's utility changes directly.
The renter's optimal consumption of H and C changes too. If pH increases, the renter will consume more of C and less of H. The homeowner's consumption will change conversely.
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