S. Alice needs to buy garlic sauce to go with he pizza Ror oeuti there is not en

Question

S. Alice needs to buy garlic sauce to go with he pizza Ror oeuti there is not enough garlic sauce, and more garlic sauce will not if every I slices of pizza (P) e sauce (S). No one in the office will eat the s utility (a) What type of utility function does Alice (or the office) have? utility function for Alice. What is the MRS Write down a (b) What is Alice's Demand for Pizza and Shades in terms of income, Y, and prices, pe and ps? (Do not plug in numbers for income and prices yet, but lea Y and p's). (c) She has $100 to spend. Pizza cost SI per slice and garlic sauce costs $1. How much will she buy of each? (she can buy partial slices and partial amounts of sauce- weird, I know.) (d) On the left graph, graph the budget constraint and the indifference curve at the optimal consumption bundle. On the right, graph the demand for pizza at various price levels. Label the axes of both graphs!

Explanation / Answer

1 pizza requires 1/4 units of garlic sauce.Garlic sauce and pizza are complements and are to be used in the same proportion.P is pizza and S is garlic sauce.

Thus,1P=1/4S

Or,4P=1S

A.U=4P,S

MRS of complements is 0 because these goods can't be substituted for each other.

B.P*Pp+S*PS=Y-budget equation.

But,S=4P

P*Pp+4P*Ps=Y

P(Pp+4Ps)=Y

P=Y/Pp+4Ps

C.Y=100

Pp=1

PS=1

P=100/1+4(1)

P=100/5

P=20

S=1/4(20)=5

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