2. In this chapter, we showed an example in whichthe consumer has preferences for consump-tion with the perfect complements property.Suppose, alternatively, that leisure and con-sumption goods are perfect substitutes. In thiscase, an indifference curve is described by theequationi = al+ bC,where a and b are positive constants, and u isthe level of utility. That is, a given indifferencecurve has a particular value for u,indifference curves having higher values for u.(a) Show what the consumer's indifference cur-with higherves look like when consumption and leisureare perfect substitutes, and determinegraphically and algebraically what con-sumption bundle the consumer chooses.Show that the consumption bundle the con-sumer chooses depends on the relationshipbetween a/b and w, and explain why.(b) Do you think it likely that any consumerwould treat consumption goods and leisureas perfect substitutes?

a. When consumption and leisure are perfect substitutes, the indifference curves are negatively…

(a) Show what the consumer's indifference cur- ves look like when consumption and leisure are perfect substitutes, and determine graphically and algebraically what con- sumption bundle the consumer chooses. Show that the consumption bundle the con- sumer chooses depends on the relationship between a/b and w, and explain why.

(a) Show what the consumer's indifference cur- ves look like when consumption and leisure are perfect substitutes, and determine graphically and algebraically what con- sumption bundle the consumer chooses. Show that the consumption bundle the con- sumer chooses depends on the relationship between a/b and w, and explain why.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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