Question

Draw a set of indifference curves showing utility levels U = 6, U = 8, and U = 12 for each of the utility functions below. Show your calculations for each indifference curve.

a. U = XY

b. U = X + Y

c. U = X Y

d. Are the commodities in the utility function given by (b) complements? Substitutes? Explain.

Answer 1

B.perfect substitute is a situation where two goods are viewed as identical. Perfect substitutes are commodities such that it is impossible to build a brand whereby customers prefer your product. Producers of a perfect substitute must except a market price and typically have no influence on the price.