Question

Suppose that a recent scandal has resulted in bad publicity for Uber. As a result, a ride with Uber () no longer provides you with the same level of satisfaction as a ride with Lyft (). In fact, a ride with Lyft provides you with double the satisfaction. That being the case, your preferences can be represented by the following utility function:

Further, let's suppose that you have a budget (I) of $21, riding with Lyft costs $1 per mile (), and given their recent bad publicity, Uber has reduced their per mile price () to $0.70.

Derive an equation for your budget line. [Hint: I am looking for something in slope-intercept form.]

	a.
	b.
	c.
	d.

Answer 1

Correct option: (d)

Reason: As per budget constraint,

P1X1 + P2X2 = M

Substituting values,

0.7x1 + 1x2 = 21

Or,

x2 = -0.7x1 + 21

Hence, correct option is (d)