(In this question, differently from our lecture notes, income will be denoted by Y, not W). The following figure shows a two-good consumption space for an agent. The horizontal axis measures good x and the vertical axis measures good y. There are three budget lines shown in the figure. The first budget line has vertical intercept Y/py and horizontal intercept Y/px. The second budget line has vertical intercept Y/p’y<Y/py, and horizontal intercept Y/px. The third budget line has vertical intercept Y/py, and horizontal intercept Y/p’x< Y/px. There are two indifference curves. These are downward sloping thin curves that do not touch. One of this curves intersects the third budget line only at bundle (3,2). The other curve intersects the second budget line only at (4,0.6) and intersects the third budget line only at (1,2.5).
Then Qx(px,py,Y), the demand of good x for prices px and py and income Y is:
4
1
2.5
2
3
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
