(a) I like to consume two olives with every shot of vodka. If I have more olives or more vodka than that ratio, I just toss the extra in the trash (they are perfect complements). What is my utility function? What do my indifference curves look like?
(a) I like to consume two olives with every shot of vodka. If I
have more olives or more vodka than that ratio, I just toss the
extra in the trash (they are perfect complements). What is my
utility function? What do my indifference curves look like?
(b) I like drinking Smirnoff and Stoli Vodka, but I really only care
about the total amount of alcohol I get out of it. They are
perfect substitutes. Smirnoff is sold in liter bottles that are
100 proof (that’s 50% alcohol). Stoli is sold in liter bottles
that are 80 proof (40% alcohol). What is my utility function
for bundles of these two vodkas? What do my indifference
curves look like?
(c) Antonin notices he is currently spending all of his money on
a bundle (x1, x2) where his marginal rate of substitution is
greater than the relative prices (p1/p2). Can Antonin reach a
bundle on a higher indifference curve with his current income?
Explain clearly and provide a graph with your response.
* Note that in (a) and (b), there are different utility functions that can
be found that describe those preferences.
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