Exercise on PerfectComplements

Exercise on PerfectComplements - Perfect complements. The...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
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 increase is twice as much as the increase in coffee” or equivalently “coffee increase is
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 10/04/2011 for the course ECONOMICS 281 taught by Professor Vg during the Spring '09 term at University of Alberta.

Page1 / 3

Exercise on PerfectComplements - Perfect complements. The...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online