Suppose that Alex's marginal rate of substitution (MRS) between good A and B is always equal to -2. The prices of the goods are $5 and $4 respectively. Alex's income is $20. Thus, his optimal consumption bundle must be (x*1,x*2) = (4,0), i.e., his demand for good A and good B is x*1 = 4 and x*2 = 0, respectively.Is this true or false? If true, show the steps in full to justify and if it is false, show the correct demand and expalin in details.

Consumer A maximizes his utility subject to a given budget constraint. A utility function describes…

Answered: Suppose that Alex's marginal rate of…

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Consumer Choice Theory

Section6.A: Indifference Curve Analysis

Problem 1SQP

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Suppose that Alex's marginal rate of substitution (MRS) between good A and B is always equal to -2. The prices of the goods are $5 and $4 respectively. Alex's income is $20. Thus, his optimal consumption bundle must be (x*₁,x*₂) = (4,0), i.e., his demand for good A and good B is x*₁= 4 and x*₂ = 0, respectively.

Is this true or false? If true, show the steps in full to justify and if it is false, show the correct demand and expalin in details.

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