Perfect complements or perfect substitutes

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Reference no: EM131448644

Assume that Dr. Slight has $100 to spend on goods X and Y. Each good costs $1. Dr. Slight’s preferences are such that he will exchange one unit of Y for two units of X to maintain his wellbeing, regardless of how much of each he is currently consuming.

a) Are X and Y perfect complements or perfect substitutes? Explain how you know.

b) Graph Dr. Slight’s budget constraint and preference mapping. Make sure to highlight the optimal bundle.

c) Will a change in income cause him to substitute X for Y, Y for X, or neither?

d) Holding his preferences constant, what must happen for him to consume both products simultaneously?

Reference no: EM131448644

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