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Questions › DSE › DSE 2010 › Q57
2 marksMicroeconomics › Budget constraint and consumer equilibrium › Non-standard budgets: bundles, rationing and quantity limitsHardabout 4 min

DSE 2010 Question 57: Budget constraint and consumer equilibrium

A consumer has utility u(x,y)=xyu(x,y)=xyu(x,y)=xy and demands bundle (x∗,y∗)(x^{*},y^{*})(x∗,y∗). Now the seller of good xxx offers a 'buy one, get one free' scheme: for each unit of xxx purchased, the consumer gets another unit of xxx free. Suppose the consumer buys (xd,yd)(x_{d},y_{d})(xd​,yd​) and gets an additional xdx_{d}xd​ for free. Which one of the following must be true?

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A consumer has utility u(x,y)=xy and demands bundle (x*,y*). Now the seller of good x offers a 'buy one, get one free' scheme: for each unit of x purchased, the consumer gets another unit of x free. Suppose the consumer buys (x_d,y_d) and gets an additional x_d for free. Which one of the following must be true? (A) x_d>x* and y_d>y* (B) x_d>x* and y_d=y* (C) x_d>x* and y_d<y* (D) x_d=x* and y_d=y*

Budget constraint and consumer equilibrium has come up 99 times in 7 exams since 2004.

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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Question from the DSE 2010 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.