Question: Suppose a consumer's preferences over commodities 1 and 2 can be represented by the utility function( 1 , 2 ) = min{ 1 , 2

Suppose a consumer's preferences over commodities 1 and 2 can be represented by the utility function(₁,₂) = min{₁,₂}, where₁,₂ 0. The prices of the two commodities are 1 and 2 respectively and the consumer's income is 150.

Suppose the price of commodity 2 reduces to 1 while the price of the other commodity andthe consumer's income remain unchanged. The income effect according to Slutsky of this pricechange on the optimal amount of commodity 1 is

Max. score: 4; Neg. score: 0

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