Suppose the consumer's utility u: X → R is strictly conver i.e. such that any x,y EX with r y and any 0 < X < 1 have Au(x) + (1 − λ)u(y) > u(λx + (1 − X)y). (a) Show that the consumer will do one of the following: Buy nothing. . Spend all their money on good 1. . Spend all their money on good 2. [Hint: The previous question could be helpful.] (b) Suppose that, in addition to benig strictly convex, u is increasing. Explain why the consumer will spend all their money on one good.

Suppose the consumer's utility u: X → R is strictly conver i.e. such that any x,y EX with r y and any 0 < X < 1 have Au(x) + (1 − λ)u(y) > u(λx + (1 − X)y). (a) Show that the consumer will do one of the following: Buy nothing. . Spend all their money on good 1. . Spend all their money on good 2. [Hint: The previous question could be helpful.] (b) Suppose that, in addition to benig strictly convex, u is increasing. Explain why the consumer will spend all their money on one good.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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