Homework answers / question archive / Melek receives utility from days spent traveling domestically (D) and days spent traveling in a foreign country (F), as given by the utility function below: U(D, F) = DF The price of a day spent traveling domestically is $160 and in a foreign country $200

Melek receives utility from days spent traveling domestically (D) and days spent traveling in a foreign country (F), as given by the utility function below: U(D, F) = DF The price of a day spent traveling domestically is $160 and in a foreign country $200

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Melek receives utility from days spent traveling domestically (D) and days spent traveling in a foreign country (F), as given by the utility function below: U(D, F) = DF The price of a day spent traveling domestically is $160 and in a foreign country $200. Melek's annual budget for traveling is $8,000. a) Find Melek's utility maximizing choice of days traveling domestically and in a foreign country. Additionally find her utility level from consuming that bundle. b) Suppose that the price of domestic traveling increases to $250 per day. Calling her budget for traveling 1, (suppose by now that it is unknown) find the demand for D and F under the new prices as a function of I. 1/2 c) Find the income necessary to make Melek reach the same utility level as before the price change. d) Compute the quantities demanded with the new prices and the income you found in section c. e) Compute the quantities demanded with the new prices and the original income. ) Using your previous answers, please explain which part of the total change in quantity of Dis due to the price increase in PD that the consumer experiences and what part of that change is due to income or substitution effects. g) Draw a graph showing the income and substitution effects you have found.