Question: Say there are three people. One has utility function u = x1, another has u=x1+x2, and the third has u = x1 -x2. a)
Say there are three people. One has utility function u = x1, another has u=x1+x2, and the third has u = x1 -x2. a) I want to know which person has which utility function. I can pick two consumption bundles, and the person will tell you which one they prefer the first, the second, or are indifferent between them. Give an example of two bundles you could pick so that each person's answer would be different. Explain. b) Say that all three people have the same standard budget set (with strictly positive prices and income) and all had the same optimal choice of consumption bundle. Draw and explain the equation of an example of such a budget set. And also explain why does this example work?
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
