ajaz_204_2013_2014_HW_5

But this doesnt tell you when youll spend all your

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Unformatted text preview: in this case you’ll end up buying units of good 1. But this doesn’t tell you when you’ll spend all your entire income on good 1. To see when case B occurs, we need to establish conditions for We don’t know For this, look at the FOC containing ; but we can find it from the other FOC by exploiting the fact that in Case B : : ⏟ Sub this back in: Re-arrange to get the “condition for case B to occur (i.e. buy good 1 only): Here is an example showing the intuition behind this result: 11 University of Toronto, Department of Economics, ECO 204, 2013 - 2014 B Case C In this scenario, you won’t consume good 1. If [ then: ⏟ ⏟ If you don’t consume good 1 then you must spend your entire income on good 2 – in this case you’ll end up buying units of good 2. But this doesn’t tell you when you’ll spend all your entire income on good 2. To see when case C occurs, we need to establish conditions for We don’t know For this, look at the FOC containing ; but we can find it from the other FOC by exploiting the fact that in Case C : : ⏟ S...
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This homework help was uploaded on 02/15/2014 for the course E 204 taught by Professor Ajaz during the Winter '13 term at University of Toronto- Toronto.

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