DSE 2009 Question 47: Budget constraint and consumer equilibrium
Setup, from Q46 of the paper:
A typical graduate student lives in a two-good world, books (x) and movies (y), with utility u(x,y)=x1/3y4/3. Prices of books and movies are 50 and 10. Scheme 1: 750 is paid as fellowship and an additional 250 as a book grant (the grant can only be spent on books). Assuming goods are perfectly divisible, the optimal consumption bundle under Scheme 1 is
(Same student, u=x1/3y4/3, prices 50 and 10.) Scheme 2: 1000 as scholarship and one movie free for each book purchased. The optimal consumption bundle under Scheme 2 is
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Setup, from Q46 of the paper: A typical graduate student lives in a two-good world, books (x) and movies (y), with utility u(x,y)=x^(1/3)y^(4/3). Prices of books and movies are 50 and 10. Scheme 1: 750 is paid as fellowship and an additional 250 as a book grant (the grant can only be spent on books). Assuming goods are perfectly divisible, the optimal consumption bundle under Scheme 1 is (Same student, u=x^(1/3)y^(4/3), prices 50 and 10.) Scheme 2: 1000 as scholarship and one movie free for each book purchased. The optimal consumption bundle under Scheme 2 is (A) (4 books, 80 movies) (B) (4 books, 84 movies) (C) (5 books, 75 movies) (D) (5 books, 80 movies)
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What this question tests
This question is on Non-standard budgets: bundles, rationing and quantity limits, part of Budget constraint and consumer equilibrium in Microeconomics.
Budget sets with bundled offers, tie-ins, quantity caps, block prices or liquidity constraints.
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