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Assume that a consumer views two goods as perfect substitutes. Normally this will result in the consumer choosing an optimal consumption bundle that contains all of one good or the other. Describe the situation in which this is not true.

Perfectly Substitutes and Indifference Curve

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Paramjeet Chawla
Paramjeet ChawlaLv8
28 Sep 2019

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Related questions

A consumer has preferences over two goods: x and y. Three bundles, which all lie on the same indifference curve for this consumer, are shown in the following table.

Bundle

x

y

A

2

8

B

2

2

C

6

2


Which of the following statements regarding these bundles is correct?

The goods are perfect substitutes for this consumer.

The goods are perfect complements for this consumer.

These bundles violate the property that indifference curves are bowed inward.

These bundles violate the property that indifference curves do not cross.

Would these be true or false and why? -a consumer with positive marginal utility for each good will always choose a bundle on her budget line. -if darren views milk chocolate and dark chocolate as perfect substitutes, then he buys whatever is cheaper. -Rita has well-behaved preferences over steak and fries. at her current consumption bundle of 3 steaks and 10 fries, her marginal rate of substitution between steak and fries is 1/2 (in absolute value). if you offered to take away one fry and give her a steak, she would take that offer.

True or False. If False explain why it's false.

1. If all prices are doubled an money income is the left the same, the budget set does not change because the relative prices do not change.

2. A decrease in income pivots the budget line around the bundle initially consumed.

3. If preferences are well-behaved, then for any commodity bundle (x1,x2), the set of commodity bundles that are worse than (x1,x2) is a convex set.

4. The marginal rate of substitution measures the distance betwee one indifference curve and the next one.

5. If someone has the utility function U= 2min(x, y), then x and y are perfect complements for that person.

6. At the boundary optimum, a consumers indifference curve must be tangent to her budget line.

7. If two goods are substitutes, then an increase in the price of one of them will increase the demand for the other.

8. An Engel curve is a demand curve with the vertical and horizontal axes reversed.

9. An inferior good is less durable than a normal good.

10. When other variables are held fixed, the demand for a Giffen good rises when income increase.

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