Suppose that X1, X2 are perfect substitutes. In this case, an indifference curve is described by the equation u = ax1 +

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Suppose That X1 X2 Are Perfect Substitutes In This Case An Indifference Curve Is Described By The Equation U Ax1 1 (45.05 KiB) Viewed 98 times

Suppose that X1, X2 are perfect substitutes. In this case, an indifference curve is described by the equation u = ax1 + bx2 where a and b are positive constants, and u is the level of utility. That is, a given indifference curve has a particular value for u, with higher indifference curves having higher values for u. Suppose that the (absolute value of) the slope of the budget line is p > 0. ** Part a (10 marks) Graphically show what the consumer's indifference curves look like when X1, X2 are perfect substitutes. ** Part b (10 marks) Find out the range of p such that the consumer chooses x1 = 0 (a corner solution). X1