Kari requests two goods: X and Y. The utility function is given by: U(XY)=X-Y. Prices of X and Y is Px and Py, and budget is of m dollars. A) Set up the budget constraint and draw the budget line in an x-y diagram. B) Whats the expression for the slope in the budget line? C) Show the condition for optimal fit using Lagranges method D) Show the optimal fit graphically and relate the figure to task C

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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Kari requests two goods: X and Y.

The utility function is given by: U(XY)=X-Y. Prices of X and Y is Px and Py, and budget is of m dollars.

A) Set up the budget constraint and draw the budget line in an x-y diagram.

B) Whats the expression for the slope in the budget line?

C) Show the condition for optimal fit using Lagranges method

D) Show the optimal fit graphically and relate the figure to task C

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Indifference curve represents the combination of two goods that give same level of utility to the consumers.

Human needs are unlimited but resources to satisfy those needs are limited due to which people have to make choices. The income and prices of the good put on constraint on consumer choices.

The budget constraint represents the combination of two goods that a consumer can afford given the income and the two goods.

 

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