Question

Complete parts 1 and 2: Part 1: Suppose the consumer believes that goods X and Y...

Complete parts 1 and 2:

Part 1:

Suppose the consumer believes that goods X and Y are perfect substitutes with 5 units of X equivalent to 1 unit of Y. Which of the following is correct?

Group of answer choices

the marginal rate of substitution is not well defined when (X,Y)=(5,1)

the marginal utility of X is 5 and the marginal utility of Y is 1

the utility function is U(X,Y)=X+5Y

the utility function is U(X,Y)=5X+Y

Part 2:

Suppose the consumer believes that goods X and Y are perfect substitutes with 5 units of X equivalent to 1 unit of Y. Given income I=$100 and Py=$5, which statement about the individual demand curve for good X is true?

Group of answer choices

the individual demand curve for X is a downward sloping straight line

the individual demand curve for X is 100/Px for Px>1

the individual demand for X is 0 when Px is small and positive when Px is large

the individual demand curve for X is 100/Px for Px<1

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Homework Answers

Answer #1

1.Suppose the consumer believes that goods X and Y are perfect substitutes with 5 units of X equivalent to 1 unit of Y. It means that change in X/Change in Y =5/1 to buy 1 more unit of Y the consumer is ready to give up 5 units of X thus the correct answer is the utility function is U(X,Y)=5X+Y

2.Suppose the consumer believes that goods X and Y are perfect substitutes with 5 units of X equivalent to 1 unit of Y. Given income I=$100 and Py=$5, the consumer will buy only X when MUx/Px > MUy/Py here correct option is the individual demand curve for X is 100/Px for Px<1

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