Question

Ralph considers x and y to be perfect substitutes. (a) Compute Ralph’s expenditure minimizing bundle of...

Ralph considers x and y to be perfect substitutes.

(a) Compute Ralph’s expenditure minimizing bundle of reaching a utility level of 10,

when the price of x is 2 and the price of y is 4.

(b) Argue that if the price of y is above 2 and the price of y rises, then his minimum

expenditure for reaching utility of 10 will not change.

(c) Argue that if the price of y is below the price of x and the price of y rises, his minimum expenditure of reaching utility of 10 will rise.

(d) Write out the expenditure minimising bundle(s) of x and y as they vary with the utility level you want to achieve and the prices of the two goods.

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