Question

No matter how many hamburgers (H) Leah consumes, she is always willing to exchange one hamburger for two tacos (T). What utility function represents her preferences?

a. U(H,T)=H+2TU(H,T)=H+2T

b. U(H,T)=H1/2TU(H,T)=H1/2T

c. U(H,T)=2lnH+lnTU(H,T)=2ln⁡H+ln⁡T

d. U(H,T)=ln(2H+T)

Answer 1

Ans. Option a

If the rate of substitution of hamburgers for tacos is the same, then this means that the slope of Leah's indifference curves is constant. So, this represents the case of perfect substitutes i.e. both hamburgers and tacos are perfect substitutes in the ratio 1:2. So, the marginal rate of substitution for tacos is 1/2. Thus, the utility function will be U(x,y) = H + 2T which is similar to the general form of indifference curve function for perfect substitutes, U(x,y) = ax + by

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