Asked by maria humayra on Jun 03, 2024
Verified
Maximilian consumes two goods, x and y.His utility function is U(x, y) maxx, y.Therefore x and y are perfect substitutes for Max.
Perfect Substitutes
Goods or services that can be used in place of each other with no loss of utility to the consumer.
- Differentiate among various categories of preferences, including perfect substitutes, perfect complements, and additional types.
Verified Answer
ZK
Zybrea KnightJun 04, 2024
Final Answer :
False
Explanation :
Maximilian's utility function, U(x, y) = max{x, y}, suggests that his utility is determined by the larger of the two quantities of goods x and y, which is characteristic of perfect complements, not perfect substitutes. In the case of perfect substitutes, the utility function would typically be linear, such as U(x, y) = ax + by.
Learning Objectives
- Differentiate among various categories of preferences, including perfect substitutes, perfect complements, and additional types.