Asked by Johnny Guittard on May 01, 2024
Verified
Joe Bob has a cousin Sam who consumes goods 1 and 2.Sam 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 Sam's preferences?
A) U(x1, x2) 16x21 16x1x2 4x22.
B) U(x1, x2) min4x1, 2x2.
C) U(x1, x2) 40x1 20x2 10,000.
D) U(x1, x2) 4x1 2x2 1000.
E) More than one of the above does not represent Sam's preferences.
Perfect Substitute
Goods that can be used in place of one another with no loss of utility to the consumer.
Utility Function
A mathematical representation of how consumers rank different bundles of goods based on the level of satisfaction or utility those goods provide.
- Determine perfect substitutes and complements through examination of specified utility functions.
Verified Answer
JM
James McKinneyMay 03, 2024
Final Answer :
B
Explanation :
Option B represents a Leontief utility function, which implies perfect complements, not perfect substitutes. This does not match Sam's preference for substituting 2 units of good 1 for 4 units of good 2.
Learning Objectives
- Determine perfect substitutes and complements through examination of specified utility functions.