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1.When (for what type of preferences) is MRS%? constant?

2.Most consumers in Ontario choose between

electricity (costing 9c per kWh) and natural gas (costing 12c per m3) to heat their homes. After criticism over rapid price increases, Ontario is providing residents with an 8% rebate on electricity rates. Draw the budget constraints for Ontarions before and after this price change. Be sure to label the diagram fully (axes, intercepts and slope).

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1.Perfect substitutes have... View the full answer

image_2020_02_12T08_01_37_509Z.png

Budget line when the prices of both the sources of heating change
Natural Gas
(M - e Pe )/Pm
(M - e P'= )/P'n
BL = BL before
price change
BL' = BL after
price change
BL'
BL
Electricity
(M - n Pin...

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