Question
Suppose an individual has income y 0 of the numeraire good y. Consider 3 prices of good x: At the highest price, p x 3
Suppose an individual has income y0of the numeraire good y. Consider 3 prices of good x: At the highest price, px3= y0/x0, the individual's optimal consumption of x is x.At an intermediate price px2= y0/x1where x1= 2x0, the optimal consumption of x would be x.And at the lowest price of x, px1= y0/x2where x2= 3x0, the optimal consumption of x is x.
a) Depict this situation graphically.
b) In a diagram directly below the diagram in part a), derive 3 points on this individual's demand curve, indicating the quantities x, x and x that correspond to the prices px3, px2, and px1respectively.
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