There are no quasilinear tastes that have elasticity of substitution equal to 1 everywhere.

Question

Quizplus · Accepted Answer

This statement is true. According to the theory of quasilinear preferences, the elasticity of substitution between two goods is constant and equal to the ratio of their marginal utilities. If this elasticity is equal to 1 everywhere, it means that the marginal utilities of the two goods are always equal. However, in quasilinear preferences, one of the goods is assumed to be a linear good, which means that its marginal utility is constant. Therefore, the elasticity of substitution cannot be equal to 1 everywhere.

There Are No Quasilinear Tastes That Have Elasticity of Substitution