Question
Suppose you have the following information about the choices of an agent (here we assume, as always that the price of good 2 is normalized
Suppose you have the following information about the choices of an agent (here we assume, as always that the price of good 2 is normalized to 1)
1) The agent chose bundle (2,6), and the price of good 1 is p1 = 2
2) The agent chose bundle (0,8), and the price of good 1 is p1 = 0.5
3) The agent chose bundle (5,1), and the price of good 1 is p1 = 1
Answer the following:
(i) Assuming the agent has monotonic preferences, draw on the same graph the three budgets and choices corresponding to situations 1,2, and 3.
(ii) Based on the info you got and your graph, can this agent's choices be rationalized by some monotonic utility function?
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i The three budgets and choices can be drawn on a graph with good 1 on the xaxis and good 2 on the y...Get Instant Access to Expert-Tailored Solutions
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Principles of economics
Authors: N. Gregory Mankiw
6th Edition
978-0538453059, 9781435462120, 538453052, 1435462122, 978-0538453042
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