Rubinstein2005-page85 - October 21, 2005 12:18 master Sheet...

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Unformatted text preview: October 21, 2005 12:18 master Sheet number 83 Page number 67 Demand: Consumer Choice 67 c. The consumer chooses the bundle ( x 1 , x 2 ) which satisfies x 1 / x 2 = p 1 / p 2 and costs w . (Does the utility function u ( x ) = x 2 1 + x 2 2 rationalize the consumers behavior?) Problem 7. ( Moderately difficult ) In this question, we consider a consumer who behaves differently from the classic consumer we talked about in the lecture. Once again we consider a world with K commodities. The consumers choice will be from budget sets. The consumer has in mind a preference relation that satisfies continuity, monotonicity, and strict convexity; for simplicity, assume it is represented by a utility function u . The consumer maximizes utility up to utility level u . If the budget set allows him to obtain this level of utility, he chooses the bundle in the budget set with the highest quantity of commodity 1 subject to the constraint that his utility is at least u ....
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This note was uploaded on 12/29/2011 for the course ECO 443 taught by Professor Aswa during the Fall '10 term at SUNY Stony Brook.

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