Answer to Question #176545 in Microeconomics for Tracy Sackey

Question

A consumer buys only two goods, X and Y. No other goods exist and there is no possibility of saving. The marginal utility of X is independent of the quantity of Y consumed, and the marginal utility of Y is independent of the quantity of X consumed. MUX is constant no matter how he consumes, but MUY falls as consumption increases. In the initial equilibrium he consumes one of each good. How much can you infer about the following:

a.) The slope of the indifference curve

b.) The curvature of the indifference curve

c.) Whether the marginal utility of money is constant, rising, or falling as money income increases.

d.) the income elasticity of demand for Y

e.) The price elasticity of demand for X.

Answer 1

a.) The slope of the indifference curve is a contour line.

b.) The curvature of the indifference curve will be the constant slope of tje straight line targent to the curve at the particular point.

c.)The marginal utility of money is falling as money income increases.

d.) the income elasticity of demand for Y is negative.

e.) The price elasticity of demand for X is unitary elastic demand.