Question: consider a consumer with preferences represented by a utility function u(x1,x2) = x1 + x2, where > 0 is a parameter. Fix prices p =
consider a consumer with preferences represented by a utility function
u(x1,x2) = x1 + x2, where > 0 is a parameter. Fix prices p = (p1,p2) > 0 and income m > 0.
- (a)[2] Illustrate the consumer's indifference curve through the bundle (0, 1).
- (b)[2] Show that the consumer's preferences are convex.
- (c)[2] Write down the consumer's utility maximisation problem.
- (d)[2] Argue that the consumer's budget constraint holds as an equality at any optimal
consumption bundle (x1*, x2*).
- (e)[2] When is x2 = 0 optimal for the consumer?
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