Suppose there are two goods, good X and good Y . Both goods are available in arbitrary non-negative quantities; that is, the consumption set is R2++. A typical consumption bundle is denoted (x; y), where x is the quantity of good X and y is the quantity of good Y. A consumer, Alia, faces two constraints. First, she has a limited amount of wealth, w>0, to spend on the goods X and Y , and both of these goods have strictly positive prices, px >0 (for good X) and py>0 (for good Y ). Second, she has a limited amount of time, T > 0, to purchase the goods, and it takes a strictly positive amount of time to purchase each of the goods. In particular, suppose that it takes tX > 0 units of time to purchase one unit of good X, and ty units of time to purchase one unit of good Y . a) Suppose that w = T = 10, px = ty = 2, and py= tx = 1. In an appropriate diagram, illustrate (i) Alia's monetary budget constraint, (ii) Alia's time budget constraint, and (iii) Alia's overall budget constraint. b) With w = T = 10, px = ty = 2, and py= tx = 1 as above, can Alia consume the bundle (6; 2)? Can she consume the bundle (2; 6)? Explain your answers. In particular, what constraint (the money constraint or the time constraint) is relevant for each of these consumption bundles?
Suppose there are two goods, good X and good Y . Both goods are available in arbitrary non-negative quantities; that is, the consumption set is R2++. A typical consumption bundle is denoted (x; y), where x is the quantity of good X and y is the quantity of good Y.
A consumer, Alia, faces two constraints. First, she has a limited
amount of wealth, w>0, to spend on the goods X and Y , and both
of these goods have strictly positive prices, px >0 (for good X) and
py>0 (for good Y ). Second, she has a limited amount of time, T > 0,
to purchase the goods, and it takes a strictly positive amount of time
to purchase each of the goods. In particular, suppose that it takes
tX > 0 units of time to purchase one unit of good X, and ty units of
time to purchase one unit of good Y .
a) Suppose that w = T = 10, px = ty = 2, and py= tx = 1. In an appropriate diagram, illustrate (i) Alia's monetary budget constraint, (ii) Alia's time budget constraint, and (iii) Alia's overall budget constraint.
b) With w = T = 10, px = ty = 2, and py= tx = 1 as above, can Alia consume the bundle (6; 2)? Can she consume the bundle (2; 6)? Explain your answers. In particular, what constraint (the money constraint or the time constraint) is relevant for each of these consumption bundles?
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