Consider an individual making choices over two goods, x and y with prices px and py, and who has income I
a) If utility is given by u(x; y) = x + y, are the tastes represented homothetic? Are the tastes quasi-linear? Explain.
b) Donald says that since all consumers face the same prices, their budget constraints all have the same slope, and so they should all consume roughly the same quantities of goods if their incomes were the same. Barry disagrees. Who is right and why?
suppose you are given a coupon for pizza. This coupon lowers the price for each additional pizza you buy by 5%. What happens to your budget constraint (compared to the budget with no coupon). Explain.
Consider an individual making choices over two goods, x and y with prices px and py, and who has income I
a) If utility is given by u(x; y) = x + y, are the tastes represented homothetic? Are the tastes quasi-linear? Explain.
b) Donald says that since all consumers face the same prices, their budget constraints all have the same slope, and so they should all consume roughly the same quantities of goods if their incomes were the same. Barry disagrees. Who is right and why?
suppose you are given a coupon for pizza. This coupon lowers the price for each additional pizza you buy by 5%. What happens to your budget constraint (compared to the budget with no coupon). Explain.
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