Question

It's important to have a plan in action when determining the consumer's optimal bundle. Given an imperfect substitutes utility function, the prices of the goods, and income write out 4 - 8 steps you would use to solve for the optimal bundle. Be specific.

Answer 1

Imperfect substitutes utility function is one in which good can be substituted for one another but not perfectly.

So in case of substitutes case consumer want to maximize the total utility from the consumption of goods. So in order to maximize the utility you will allocate your budget to obtain the good whose price is lowest.

Suppose there are two goods x and y.

Let px be price of good x and py be price of good y such that px<py.

So for given price and income if consumer purchase good x from his income then he can maximize his utility.

So in equilibrium consumwr will purchase good whose price is lowest.