A consumer has the utility function U(x, y)= min{x, 2y}.If the price of good x is zero and the price of good y is p, then the consumer's demand function for good y is m/2p.

Question

Quizplus · Accepted Answer

Given the utility function U(x, y) = min{x, 2y}, if the price of good x is zero, the consumer will consume x up to the point where the marginal utility of consuming more x does not exceed the utility derived from consuming good y, given its cost. However, since x is free, the consumer will focus on maximizing utility based on the constraint imposed by the price of y and their income (m). The demand function for y cannot be directly inferred as m/2p without considering the consumer's optimization problem, which involves equating the marginal rate of substitution to the price ratio. The given utility function suggests a perfect substitutes scenario, but the demand for y would depend on the consumer's total income and the relative utility derived from each good, not just the price of y. The statement simplifies the relationship without considering these factors.

A Consumer Has the Utility Function U(x, Y)= Min{x, 2y}