5) Consider the following case of perfect substitutes, U(T1, T2) = 3x1 + 2x2 Assume the budget constraint, y = px1 + x2, with the price of good 2 nor- malized to 1. a) Discuss the implications of these kinds of preferences. d)Under perfect substitutes at what price is the consumer indifferent between consuming x1 and x2.? At what price will they only consume good 1? good 2? e) Suppose there is a p such that there is an interior solution in the case of perfect substitutes, how much of good 1 and 2 is purchased?
5) Consider the following case of perfect substitutes, U(T1, T2) = 3x1 + 2x2 Assume the budget constraint, y = px1 + x2, with the price of good 2 nor- malized to 1. a) Discuss the implications of these kinds of preferences. d)Under perfect substitutes at what price is the consumer indifferent between consuming x1 and x2.? At what price will they only consume good 1? good 2? e) Suppose there is a p such that there is an interior solution in the case of perfect substitutes, how much of good 1 and 2 is purchased?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:5) Consider the following case of perfect substitutes,
U (T1, ¤2) = 3x1 + 2x2
Assume the budget constraint, y = px1+ x2, with the price of good 2 nor-
malized to 1.
a) Discuss the implications of these kinds of preferences.
d)Under perfect substitutes at what price is the consumer indifferent between
consuming x1 and x2.? At what price will they only consume good 1? good
2?
e) Suppose there is a p such that there is an interior solution in the case of
perfect substitutes, how much of good 1 and 2 is purchased?
e) Suppose there is a p such that there is an interior solution (All this means
is that the consumer chooses a positive amount of both goods) in the case of
perfect substitutes, how much of good 1 and 2 is purchased?
f) Plot the indifference curves for perfect substitutes for various values of y
holding p fixed. Label all axes correctly.
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