Asked by arianna denn-thiele on Jul 09, 2024
Verified
Jimmy's utility function is U(a, b) ab, where a is his consumption of apples and b is his consumption of bananas.If prices and income change in such a way that Jimmy's old consumption lies on his new budget line, then Jimmy will not change his consumption bundle.
Utility Function
A mathematical model in economics that maps a consumer's preferences for various products and services to a numerical representation of utility or satisfaction.
- Discern the impact of utility functions on determining the behaviors and choices of consumers.
- Understand the effect of price and income fluctuations on the choice of consumption bundles under different types of preferences (strictly convex, perfect substitutes, and perfect complements).
Verified Answer
CM
Carmelo MattioliJul 11, 2024
Final Answer :
False
Explanation :
Jimmy's utility function suggests he has perfect substitutes preferences (linear utility function), meaning he will consume only the good that gives him the highest utility per dollar spent. If prices or income change, even if his old consumption bundle lies on the new budget line, he may adjust his consumption to focus on the good that now offers more utility per dollar, assuming the price change affects the relative prices of apples and bananas.
Learning Objectives
- Discern the impact of utility functions on determining the behaviors and choices of consumers.
- Understand the effect of price and income fluctuations on the choice of consumption bundles under different types of preferences (strictly convex, perfect substitutes, and perfect complements).