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Questions › IIT JAM › IIT JAM 2024 › Q32
2 marksMicroeconomics › Budget constraint and consumer equilibrium › Demand under complements, substitutes and quasilinear utilityVery Hardabout 4 min

IIT JAM 2024 Question 32: Budget constraint and consumer equilibrium

Consider F=4x1+2x2F = 4x_1 + 2x_2F=4x1​+2x2​, G=min⁡(4x1,2x2)G = \min(4x_1, 2x_2)G=min(4x1​,2x2​) and H=x1+x2H = \sqrt{x_1} + x_2H=x1​​+x2​, with goods x1,x2x_1, x_2x1​,x2​ at unit prices px1,px2p_{x_1}, p_{x_2}px1​​,px2​​. Which of the following is/are CORRECT?

Select all that apply.

Answer and worked solution

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Plain-text version

Consider F = 4x₁ + 2x₂, G = min (4x₁, 2x₂) and H = √(x₁) + x₂, with goods x₁, x₂ at unit prices p_(x₁), p_(x₂). Which of the following is/are CORRECT? (A) The MRS is -1, -2, and -0.5√(x₁) for F, G, and H respectively (B) If p_(x₁)=p_(x₂), the utility-maximisation problem with F has a corner solution (C) If income is 100 and p_(x₁)=p_(x₂)=2, then with G the sum of optimal x₁ and x₂ is 50 (D) If income is 100, p_(x₁)=5, and p_(x₂)=5000, then with H the optimal value of x₂ is 20

Also written as: Consider F = 4x_1 + 2x_2, G = min (4x_1, 2x_2) and H = sqrt(x_1) + x_2, with goods x_1, x_2 at unit prices p_(x_1), p_(x_2). Which of the following is/are CORRECT?

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

What this question tests

This question is on Demand under complements, substitutes and quasilinear utility, part of Budget constraint and consumer equilibrium in Microeconomics.

Deriving demand when preferences are L-shaped, linear or quasilinear, and what that implies for income and price responses.

TestStop has 23 past-paper questions on this subtopic; the nearest in year are below.

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