Question

Suppose that a consumer with preferences over two goods has income 200 and faces the price...

Suppose that a consumer with preferences over two goods has income 200 and faces the price vector (p1,p2).

Suppose the consumer chooses to consume the bundle (120,80) and achieves a maximum utility level of 2,960 in this situation.

The minimum expenditure needed at these prices in order to achieve the utility level 2,960 is:

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Answer #1

It has been stated that for the price level (p1,p2) and with an income of 200, the maximum utility he can get is 2960 and this corresponds to the bundle (120,80).

Max U(x1,x2) = 2960 where p1x1+p2x2=200

So, if we consider the dual of the statement, it will state that, at the price level of (p1,p2), to attain a utility of 2960, the minimum income level/expenditure must be 200.

Min E(p1,p2,x1,x2) = p1x1+p2x2 = 200 where U(x1,x2)=2960

Thus, the answer is 200. (Ans)

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