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5 Suppose I have 20 bananas and 16 apples, and you own 25 bananas and 20 apples. With bananas on the horizontal axis and apples
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Suppose I have 20 bananas and 16 apples, and you own 25 bananas and 20 apples. With bananas on the horizontal axis and apples on the vertical, the slope of my indifference curve at my current bundle is -1, and the slope of your indifference curve through your current bundle is -3. Assume that our tastes satisfy our usual assumptions. a. Can you suggest a trade to me that would make both of us better off? b. After we engage in the trade you suggested, will our MRS's have gone up or down (in absolute value)? c. If the values for our MRS's at our current consumption bundles were reversed, how would your answers to (a) and (b) change? d. What would have to be true about our MRS's at our current bundles in order for you not to be able to come up with a mutually beneficial trade? a. Suppose your tastes over beer (x) and pizza (y) can be summarized by the utility function U = x y (so that MU, = 3x y and MU, = x ) and that p.=2, py=3 and weekly income I=120. Calculate your optimal combination of weekly beer and pizza consumption. b. Suppose that instead of the preferences in part a, you consider beer and pizza perfect complements (that is, you strongly prefer to consume them in equal quantities). With the same prices and income as in part a, calculate your optimal combination of beer and pizzaStep by Step Solution
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