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In: Economics

Suppose the indifference curves of a perfect substitutes agent have a slope of -9/7. Good x...

Suppose the indifference curves of a perfect substitutes agent have a slope of -9/7. Good x is the numéraire. What would ?? need to be in order to create the “degenerate case” (whereby the agent is indifferent between everything on his budget line)?

Solutions

Expert Solution

Price ratio must be equal to the slope of the Indifference Curve in order to create the “degenerate case".

Slope=Px/Py

9/7=1/Py

Py=7/9

Rahul Sunny answered 2 years ago
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