2. Consumer Choice

There are five consumers with very distinct preferences over goods 1 and 2. Their preferences are represented below either by a statement or an utility function. See (a) - (e).

Each has the same income and faces the same prices. m = 30, p₁ = 2, p₂ = 3.

Find the optimal choice for each consumer. For each, show the solution on a graph. For clarity, please put x₁ on the horizontal axis and x₂on the vertical axis. Give x₁*, x₂*. Be sure to sketch a representative indifference curves for each consumer and note which direction indicate increasing levels of utility. (Hint: Use a different color for drawing indifference curves.)

U = x1x2 MRS = x2/x1 x1* = x2* =
U = x1 (Hint: x2 is neutral) x1* = x2* =

Goods 1 and 2 are perfect complements 1 to 1. x1* = x2* =
U = 2x1 + x2 x1* = x2* =
U = x1 - x2(Hint: Good 2 is bad) x1* = x2* =