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Question 1                                         &nbs

Question 1                                                                                                                  

Jasina has preferences for two goods  x, y and her marginal rate of substitution (MRS) between x and  y  is given by  3y/x. Her budget constraint takes the form  m ≥ pxx + pyy,   where  m is income and  px, py   are the prices of  x,  y respectively.

(a) Someone says that Jasina’s expenditure on y  (i.e., pyy) is always one third of her expenditure on  x  (i.e., pxx).   Is this correct? Are x  and  y normal goods?

(b) Jason has different preferences to Jasina: his marginal rate of substitution (MRS) between  x and  y is equal to 3 for all x, y > 0. Jason’s budget constraint is the same as Jasina’s. What can you say about Jason’s demands for  x, y?

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