Matthew has the following utility over bundles (x₁,x₂): U(x₁, x₂) = 4₁√√x₁ + x₂. The prices in the market are p₁= $4 and p₁ = $2. His income is $y. Consider the following three statements: (1) If y = 8, the optimal bundle for Bob is x₁ = 1 and x*₂ = 2. 1 2 (2) If y = 3, Bob will buy only from x, and not from x₂. (3) No matter what his income is, if it exceeds $4, Bob will buy only 1 unit of x₁. a) only (1) is correct. b) only (1) and (2) are correct. c) only (1) and (3) are correct. Od) All three statements are correct. e) None of the above.
Matthew has the following utility over bundles (x₁,x₂): U(x₁, x₂) = 4₁√√x₁ + x₂. The prices in the market are p₁= $4 and p₁ = $2. His income is $y. Consider the following three statements: (1) If y = 8, the optimal bundle for Bob is x₁ = 1 and x*₂ = 2. 1 2 (2) If y = 3, Bob will buy only from x, and not from x₂. (3) No matter what his income is, if it exceeds $4, Bob will buy only 1 unit of x₁. a) only (1) is correct. b) only (1) and (2) are correct. c) only (1) and (3) are correct. Od) All three statements are correct. e) None of the above.
Chapter3: Preferences And Utility
Section: Chapter Questions
Problem 3.3P
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Transcribed Image Text:Matthew has the following utility over bundles (x₁,x₂): U(x₁, x₂) = 4₁√√x₁ + x₂. The prices in
the market are p₁ = $4 and P₂ = $2. His income is $y. Consider the following three
statements:
(1) If y=8, the optimal bundle for Bob is x₁= 1 and x*₂ = 2.
1
2
(2) If y = 3, Bob will buy only from x, and not from 1 X₂.
(3) No matter what his income is, if it exceeds $4, Bob will buy only 1 unit of x₁.
O a) only (1) is correct.
b) only (1) and (2) are correct.
c) only (1) and (3) are correct.
d) All three statements are correct.
e) None of the above.
Z
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