2. Suppose a consumer has an income of $100. P1=10 and p2=10. a. Draw the consumer's budget constraint b. On the same drawing, add an [indifference curve on which the optimal basket lies. Assume the indifference curve is convex as usual c. On the same drawing, add an indifference curve which has a lower utility level than the optimal basket. Make sure to include the intersections of the curve with the budget constraint, and carefully explain why they cannot be optimal although they are on the budget line. Solution - max X1 = I/P1 = 100/10 = 10. Similarly, maximum X2 = 10. So the budget line is X2-10-X1. Once you add the curves, you will see that the curve intersecting the budget line lies

2. Suppose a consumer has an income of $100. P1=10 and p2=10. a. Draw the consumer's budget constraint b. On the same drawing, add an [indifference curve on which the optimal basket lies. Assume the indifference curve is convex as usual c. On the same drawing, add an indifference curve which has a lower utility level than the optimal basket. Make sure to include the intersections of the curve with the budget constraint, and carefully explain why they cannot be optimal although they are on the budget line. Solution - max X1 = I/P1 = 100/10 = 10. Similarly, maximum X2 = 10. So the budget line is X2-10-X1. Once you add the curves, you will see that the curve intersecting the budget line lies

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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