Asked by Alexander Hernandez on May 18, 2024
Verified
Joe Bob has a cousin Martin who consumes goods 1 and 2.Martin thinks that 2 units of good 1 is always a perfect substitute for 4 units of good 2.Which of the following utility functions is the only one that would not represent Martin's preferences?
A) U(x1, x2) 40x1 20x2 10,000.
B) U(x1, x2) 16x21 16x1x2 4x22.
C) U(x1, x2) min4x1, 2x2.
D) U(x1, x2) 4x1 2x2 1000.
E) More than one of the above does not represent Martin's preferences.
Perfect Substitute
Goods that a consumer perceives as identical in utility, meaning the consumer is willing to substitute them for one another at a constant rate.
Utility Function
A mathematical representation that expresses how a consumer's total satisfaction or happiness is influenced by their consumption of different goods and services.
- Ascertain perfect substitutes and complements by analyzing given utility functions.
Verified Answer
CA
Cassandra AbarcaMay 18, 2024
Final Answer :
C
Explanation :
Martin's preferences are such that he always substitutes two units of good 2 for one unit of good 1. The only utility function that does not reflect this is option C, which creates a function where the minimum value of either 4 units of good 1 or 2 units of good 2 is used to determine overall utility.
Learning Objectives
- Ascertain perfect substitutes and complements by analyzing given utility functions.