Question

QUESTION 2 Find the Marginal Rate of Substitution (MRSxy) of a consumer with preferences described by U(x, y) = ln(2x + y). c. MRSxy=0.5 MRSxy=2 MRSxy = ? MRSxy = 2x+y None of the above 1 QUESTION 3 A consumer has preferences represented by utility function U(x, y) = x+y. The initial prices are Px = 1 and Py = 2, while initial income is 12. Find the income effect associated with an increase in the price of x to Px = 3. a. b. c. d. 0 - 1 -3 -9 None of the above

Answer 1

Answer

(2)

Formula : MRS = MU_x/MU_y

where,

au MU1ac

Thus,

MRS - MU, MU, 2(1/(2x + y)) (1/(2x + 5))

Hence the correct answer is (b) MRS_xy = 2.

(3)

U = x + y

We can see from above utility function that x and y are perfect substitutes and for perfect substitutes utility function Income effect = 0.

Hence, the correct answer is (a) 0.