Asked by Chiara Houston on Jun 27, 2024
Verified
Jessica's preferences for peanut butter and jelly are represented by the utility function U(p, j) min2p, 5j.If prices and income change, but her old consumption bundle lies somewhere on her new budget line, she will not change her consumption.
Consumption Bundle
A collection of goods or services that an individual or household consumes within a given period.
- Understand the importance of utility functions in determining consumer behavior and choices.
- Comprehend the influence of changes in income and prices on the composition of consumption bundles considering distinct preference types (strictly convex, perfect substitutes, and perfect complements).
Verified Answer
VS
Vidhi SharmaJun 29, 2024
Final Answer :
True
Explanation :
If Jessica's old consumption bundle lies somewhere on the new budget line, it means that she can still afford to buy the same combination of peanut butter and jelly as before. Since her preferences are represented by a utility function, she will continue to consume the same combination to maximize her utility. Therefore, she will not change her consumption.
Learning Objectives
- Understand the importance of utility functions in determining consumer behavior and choices.
- Comprehend the influence of changes in income and prices on the composition of consumption bundles considering distinct preference types (strictly convex, perfect substitutes, and perfect complements).