Text: A family has to decide how much of their monthly income to spend on good 1 and good 2. Suppose that this household has a fixed income of $1800 per month. Further, suppose that the price of good 1 is p1=$6 and the price of good 2 is p2=$3. Finally, suppose that the tastes of the household are described by the utility function (1,2)=112232, where 1 denotes the quantity of good 1 and 2 the quantity of good 2.

Questions:

1. In a graph with good 1 on the horizontal axis and good 2 on the vertical axis, what is the value of the vertical intercept of the budget constraint?

2. In a graph with good 1 on the horizontal axis and good 2 on the vertical axis, what is the value of the horizontal intercept of the budget constraint?

3. Do the indifference curves of the household intersect the axes?

a. Yes, they intersect both axes

b. They intersect only the vertical axis

c. No, they do not intersect the axes

d. They intersect only the horizontal axis

4. Do the tastes of the household satisfy the 5 standard assumptions about tastes introduced in

the lectures?

a. No, monotonicity is violated

b. Yes, they do

c. No, convexity is violated

d. There is not enough information to answer