Question

Consider an individual who consumes only two goods, ? and ?. She cannot borrow money and...

Consider an individual who consumes only two goods, ? and ?. She cannot borrow money and does not save money. Her Marshallian demand functions are ?* = 0.8(M/Px) and ?* = 0.57(M/Py) , where ?x and ?y are the prices of goods ? and ? respectively and ? is her income. Determine whether this set of demand functions is valid.

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Answer #1

Consider the image above for the solution to the problem. The demand functions violate the consumers budget constraint, and since the consumer cannot borrow and does not save, the functions are invalid.

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