Suppose that Tom considers 12.3 units of good x to be a perfect complement for 17.86...

Suppose that Tom considers 12.3 units of good x to be a perfect complement for 17.86 units of good y. Write down a utility function that represents Tom’s preferences. What is the slope of the Tom’s income expansion path?

Solutions

Expert Solution

U(x, y) = min{17.86x, 12.3y}

For such functions, 17.86x = 12.3y (As they are always consumed together.)
So, y = (17.86/12.3)x

Slope of income expansion path = dy/dx = 17.86/12.3 = 1.45

Rahul Sunny answered 1 year ago

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