Joe Bob has a cousin Sam who consumes goods 1 and 2.Sam thinks that 2 units of good 1 is always a perfect substitute for 4 units of good 2.Which of the following utility functions is the only one that would not represent Sam's preferences? A)U(x₁, x₂)=16x²₁ + 16x₁x₂ + 4x²₂. B)U(x₁, x₂)=min{4x₁, 2x₂}. C)U(x₁, x₂)=40x₁ + 20x₂ - 10,000. D)U(x₁, x₂)=4x₁ + 2x₂ +1000. E)More than one of the above does not represent Sam's preferences.

Question

Quizplus · Accepted Answer

Option B represents a Leontief utility function, which implies perfect complements, not perfect substitutes. This does not match Sam's preference for substituting 2 units of good 1 for 4 units of good 2.

Joe Bob Has a Cousin Sam Who Consumes Goods