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Exercise on PerfectComplements

# Exercise on PerfectComplements - Perfect complements The...

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Perfect complements. The perfect complements are represented by an utility function U(x,y)=min{x,y/A} which is equivalent to the function U(x,y)=min{Ax,y}. 1 In this case the consumer cares about one good only to the extent it can be paired to the other good in a given proportion. Hence from U(x,y)=min{x,y/A} we gather that the consumer values units of y only if the can be paired with units of x with a proportion of A units of y for one unit of x. Examples: Left shoes=x and right shoes=y. The utility is U=min {x,y} (see power point presentation for a graph if the indifference curves of this utility). Say that you exactly want two tsp of sugar (S) for each cup of coffee (C). Then your utility from C and S can be expressed by U(C,S)=min {C,S/2} or equivalently U(C,S)=min {2C,S}. The indifference curves are L shaped with kinks on the line 2C=S, that is C=S/2. Try to draw the graph. Some more remarks Fact: to go from one kink to another you increase C and S in this proportions “sugar

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Exercise on PerfectComplements - Perfect complements The...

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