Let the utility function be given by: U(x, y) = 2x + 3y where px and py are the corresponding prices and m is the income. This preference is characterized by ‘corner solutions,’ where all income is spent on only one good. 1. On a graph, draw a couple of the indifference curves (label the slope). 2. What’s the absolute value of the MRS? Given this, state the conditions for px/py under which (i) only good x is consumed, (ii) only y is consumed. What is/are the optimal consumption bundle(s) when the |MRS| is precisely equal to px/py? 3. Graph the income offer curve for these preferences for cases (i) and (ii). 4. Let py = 1 and graph the inverse demand function for x.
Let the utility function be given by: U(x, y) = 2x + 3y where px and py are the corresponding prices and m is the income. This preference is characterized by ‘corner solutions,’ where all income is spent on only one good. 1. On a graph, draw a couple of the indifference curves (label the slope). 2. What’s the absolute value of the MRS? Given this, state the conditions for px/py under which (i) only good x is consumed, (ii) only y is consumed. What is/are the optimal consumption bundle(s) when the |MRS| is precisely equal to px/py? 3. Graph the income offer curve for these preferences for cases (i) and (ii). 4. Let py = 1 and graph the inverse demand function for x.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Let the utility function be given by: U(x, y) = 2x + 3y where px and py are the corresponding prices and m is the income. This preference is characterized by ‘corner solutions,’ where all income is spent on only one good.
1. On a graph, draw a couple of the indifference curves (label the slope).
2. What’s the absolute value of the MRS? Given this, state the conditions for px/py under which (i) only
good x is consumed, (ii) only y is consumed. What is/are the optimal consumption bundle(s) when
the |MRS| is precisely equal to px/py?
3. Graph the income offer curve for these preferences for cases (i) and (ii).
4. Let py = 1 and graph the inverse
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