1 explain With the aid of two well labelled diagram(s) with before and after transitions whether the statement below is True, False or Cannot be determined, given the information provided: Two commodities, P and Q are perfect substitutes with per unit prices of $PP and $PQ respectively. The income of an individual is given by $I. It is also given that initially, $PP = $PQ. Then it can be reasonably claimed that in a specific situation where $I remains unchanged and due to some exogenous factor, $PP < $PQ, then the budget line, which initially was overlapping an indifference curve will pivot, become flatter and resultantly, the optimal bundle will be always be a corner solution at (0,Q*) and no other possibility would exist.
1 explain With the aid of two well labelled diagram(s) with before and after transitions whether the statement below is True, False or Cannot be determined, given the information provided: Two commodities, P and Q are perfect substitutes with per unit prices of $PP and $PQ respectively. The income of an individual is given by $I. It is also given that initially, $PP = $PQ. Then it can be reasonably claimed that in a specific situation where $I remains unchanged and due to some exogenous factor, $PP < $PQ, then the budget line, which initially was overlapping an indifference curve will pivot, become flatter and resultantly, the optimal bundle will be always be a corner solution at (0,Q*) and no other possibility would exist.
Chapter3: Preferences And Utility
Section: Chapter Questions
Problem 3.10P
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explain With the aid of two well labelled diagram(s) with before and after transitions whether the statement below is True, False or Cannot be determined, given the information provided:
Two commodities, P and Q are perfect substitutes with per unit prices of $PP and $PQ respectively. The income of an individual is given by $I. It is also given that initially, $PP = $PQ. Then it can be reasonably claimed that in a specific situation where $I remains unchanged and due to some exogenous factor, $PP < $PQ, then the budget line, which initially was overlapping an indifference curve will pivot, become flatter and resultantly, the optimal bundle will be always be a corner solution at (0,Q*) and no other possibility would exist.
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