This** preview**
has intentionally

**sections.**

*blurred***to view the full version.**

*Sign up*
**Unformatted text preview: **4. One way oF modelling consumer behaviour is to think that a consumer will try to maximise their beneft or uTlity From the consumpTon bundle they buy. Let a consumer’s uTlity From consuming x1 units oF good 1 and x2 units oF good 2 is given by U = x1.x2. (x1 and x2 are greater than 0). Now consider the consumer has a uTlity oF 10. Draw the combinaTons oF x1 and x2 that can achieve this outcome. Do the same For U = 20 and U = 25. Interpret these curves. (Note, these curves are called Indi±erence Curves). What does the slope oF the indi±erence curve mean? Remember the budget constraint For a consumer is p1.x1 + p2.x2 = M, where p1 and p2 are the prices oF goods 1 and 2, and M is her income. Draw this curve on your diagram. What consumpTon bundle will the consumer choose? Interpret your result. Additonal questons: 5. QuesTon 3 on page 206-07 oF the text 6. QuesTon 5 on page 207 oF the text....

View
Full Document

- One '14
- Economics, Supply And Demand, 6 days, 300 tons