We consider the behaviour of a single, utility-maximising consumer, Rachel, whose utility function, U: U(b, c)...

Transcribed Image Text:

We consider the behaviour of a single, utility-maximising consumer, Rachel, whose utility function, U: U(b, c) = 2b + c, who faces prices, p, and pc, and who has an amount m to finance consumption. a) Obtain Rachel's marginal rate of substitution. [3 marks] b) Explain why we would not expect to obtain an income expansion path for Rachel. [3 marks] c) Define the elasticity of substitution as a property of a function, and without calculation, explain why for Rachel's utility function, there is perfect (infinite) elasticity. [4 marks] We consider the behaviour of a single, utility-maximising consumer, Rachel, whose utility function, U: U(b, c) = 2b + c, who faces prices, p, and pc, and who has an amount m to finance consumption. a) Obtain Rachel's marginal rate of substitution. [3 marks] b) Explain why we would not expect to obtain an income expansion path for Rachel. [3 marks] c) Define the elasticity of substitution as a property of a function, and without calculation, explain why for Rachel's utility function, there is perfect (infinite) elasticity. [4 marks]

Answer rating: 100% (QA)

Introduction Considering the information as we have Explanation a Now ... View the full answer