True/False - Briefly explain the reason. a. The utility function U(X1,X2)=X1^a +

Question

True/False - Briefly explain the reason.

a. The utility function U(X1,X2)=X1^a + 2X2^b. Corresponds to preferences for perfect substitutes.

b. All ordinary (non-Giffen) goods are also normal goods. (Hint: Use the Slutsky equation to support your answer)

c. If consumer consumes only two goods, both of them can be inferior.

d. If a consumer is making an optimal choice between two goods, x and y then, independently of his preferences, the MRS = (-PX)/(-PY) condition must always hold.

e. Any Giffen good is an inferior good. (Hint: Use the Slutsky equation to support your answer)

Explanation / Answer

a true ,because perfect substituites marginal rate of subustitution is constant

b true because normal goods and ordinary goods are same

c false it is not necessary yjat both of the goods can be inferior

d true for MRS ratio of prices of two goods are constant.

e true

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