JNU SIS 2021 Question 50: Consumer preferences and utility
Suppose the utility function has the form
U(x1,x2)=G(f(x1,x2))
where G is an increasing function, i.e., G'>0, and function f is increasing and homogenous of degree one in its arguments. Which of the following are true:
A. The price consumption curve is an upward sloping straight line from the origin
B. The income consumption curve is a straight line from the origin.
C. The two goods are normal goods.
D. The marginal rate of substitution between the two goods depends only on the ratio in which the two goods are consumed.
Choose the correct answer from the options given below:
Tap an option to check your answer.
Answer and worked solution
Checking your account…
Plain-text version
Suppose the utility function has the form U(x₁, x₂) = G(f(x₁, x₂)) where G is an increasing function, i.e., G'>0, and function f is increasing and homogenous of degree one in its arguments. Which of the following are true: A. The price consumption curve is an upward sloping straight line from the origin B. The income consumption curve is a straight line from the origin. C. The two goods are normal goods. D. The marginal rate of substitution between the two goods depends only on the ratio in which the two goods are consumed. Choose the correct answer from the options given below: (A) A only (B) A, B, and C only (C) B, C, and D only (D) All of A to D are true.
Also written as: Suppose the utility function has the form U(x_1, x_2) = G(f(x_1, x_2)) where G is an increasing function, i.e., G'>0, and function f is increasing and homogenous of degree one in its arguments. Which of the following are true: A. The price consumption curve is an upward sloping straight line from the origin B. The income consumption curve is a straight line from the origin. C. The two goods are normal goods. D. The marginal rate of substitution between the two goods depends only on the ratio in which the two goods are consumed. Choose the correct answer from the options given below:
Consumer preferences and utility has come up 93 times in 7 exams since 2007.
What this question tests
This question is on Homothetic and quasilinear preferences, part of Consumer preferences and utility in Microeconomics.
Preferences whose expansion paths are straight lines (homothetic), or whose demand for one good ignores income (quasilinear).
TestStop has 5 past-paper questions on this subtopic.
