Question
A consumer allocates her incomem= 10 between goods 1 and 2, and she considers them to be perfect substitutes:u(x1, x2) =x1+x2. The price of good
A consumer allocates her incomem= 10 between goods 1 and 2, and she considers them to be perfect substitutes:u(x1, x2) =x1+x2. The price of good 2 is$1 per unit, and but the price of good 1 is 2x1per unit. That is, good 1 becomes more expensive if more of good 1 is purchased.
(a) Write down an equation expressing the consumer's budget constraint.
(b) Draw the budget constraint, labeling the horizontal and vertical intercepts.
(c) Draw an indifference curve that passes through the budget constraint.
(d) Compute the optimal bundle (x1,x2) demanded by the consumer.
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