Suppose a consumer has preferences represented by the utility function U(X,Y) =

Question

Suppose a consumer has preferences represented by the utility function U(X,Y) = X2Y Suppose PY = 1, and the consumer has $180 to spend. Draw the Price-Consumption Curve for this consumer for income values PX = 1, PX = 2, and PX = 5. Your graph should accurately draw the budget constraints for each income level and specifically label the bundles that the consumer chooses for each income level. Also, for each bundle that the consumer chooses, draw the indifference curve that goes through that bundle. Make sure to label your graph carefully and accurately.

Explanation / Answer

U = X^2Y Budget Equation: M = PxX + PyY 180 =PxX +Y Put different value of Px 180 = X + Y 180 = 2X + Y 180 = 5X + Y and graph these lines Now utility is maximum at equilibrium dU = 2XY dX + X^2 dY 0 = 2XY dX + X^2dY dX/dY = - X/2Y Join different points of equillibrium to get income consumption curve

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