"Two goods, A and B are perfect substitutes with prices $PA and $PB respectively. The income of an individual is given by $Y. Initially, $PA = $PB. It is claimed that in a particular situation where $I is assumed to remain unchanged and if due to some exogenous factor, SPB < $PA, the budget line will pivot, become flatter and optimal bundle will be a corner solution (0,B*) and no other possibility would exist.

"Two goods, A and B are perfect substitutes with prices $PA and $PB respectively. The income of an individual is given by $Y. Initially, $PA = $PB. It is claimed that in a particular situation where $I is assumed to remain unchanged and if due to some exogenous factor, SPB < $PA, the budget line will pivot, become flatter and optimal bundle will be a corner solution (0,B*) and no other possibility would exist.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Assume a consumer has a well-behaved utility function (e.g. strictly increasing, diminishing MRS) with an income of $80. Suppose the price of good X is $2 and the price of good Y is $8. Assuming the consumer has chosen the optimal market basket, what is the consumers marginal rate of substitution at that consumption level? Group of answer choices 4 not enough information 40 10 .25
Suppose that Monica has income of $120, and faces prices Px = $2.9 and PY = $2.5, where x = number of cups of Starbuck coffee and Y = number of cups of MacCafe. Her goal is to maximize her utility, described by the function U=2x+ Y. a) Represent graphically the problem Monica faces. Make sure you identify your axes as well as your budget constraint and indifference curves. Also identify the optimal bundle. b) Calculate the optimal bundle. Make sure you show all your calculations.
Dan's utility function is U(x,y) =9.5 x2.4y4.9. Dan's income is 129.1 dollars, the price of good X is 4.8 and the price of good Y is 6.3, What is the slope of Dan's income expansion path, dy/dx, on a graph where good X appears on the horizontal axis and good Y appears on the vertical axis. Remember not to enter ratios below, such as 3/4, 2/9 etc. Instead enter the number in decimal form.
Determine the optimum demand for goods 1 and 2 for consumers who have the utility function u(x)=x1x2. Show that the solution will be the same whether using the slope approach (i.e the slope of the indifference curve is the same as the slope of the budget line) or using the Lagrange approach.
A consumer has a utility function given by lnU =5linx subscrip1 +3lnx subscript 2 if the budget constraint is given by 10x subscript 1 +14x subscript 2 =124 find the optimal quantity of the two commodities
Given that utility function for a consumer is given by u = (x-3)2 + (y-4)2, draw any twoindifference curves for this consumer while clearly labelling the higher one as ‘H’ and lower oneas ‘L’. Does he prefer more of a good to less of it? Does he prefer averages to extremebundles? Explain.