Answer True or False 1)consumer \'s utility function is u(x1, x2) = min {x1, x2}

Question

Answer True or False

1)consumer 's utility function is u(x1, x2) = min {x1, x2}, goods #1 and #2 are perfect complements. The optimal consumption bundle does not depend on price ratio

2)John spends all his salary on goods x1 and x2. John's demand for good x1 is elastic with respect to the own price. Price increase for good x1 leads to more consumption of good x2.

3)aggregate market supply curve is calculated by a horizontal addition of individual companies' supply curves.

4) Country's economy is in recession. Prices and income both fall by 2.8%. This results in a shift of the budget line of a representative household

Explanation / Answer

1) False.

Complementary goods are those goods which jointly satisfy a particular want of consumer. Under this utility function;

x1 = x2 and we have to put it in budget line. Optimal bundle now depends upon price ratio.

2) True

Elastic demand means minor increase in price decreases quantity demanded to zero so consumer will purchase other good.

3) True

AS is the horizontal summation of individual supply curves.

4) False

Decrease in income and prices allows consumers to consume same bundle which he initially consumes.

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