00:01
So here we're given a few things about the consumer.
00:03
We're told that her utility function is x plus y.
00:06
We're told that the price of x is two.
00:09
The price of y is equal to one.
00:11
And the consumer's income is equal to $4.
00:16
So if the price falls to, let's first set up the situation, right? so we have y, x.
00:25
Let's draw the budget constraint.
00:27
Well, we can afford a maximum of 2x, and we can afford.
00:30
Four to maximum of four y, right? so i should actually draw this a little bit differently, something like this, four.
00:38
So there's my, my blue is my budget.
00:43
Now in red, when price of y goes to 0 .5, we devoted all our resources to buying x, we can now afford eight.
00:53
So the new budget constraint looks like this.
00:56
That's my new budget with the lower price.
01:00
So we need to think about what's happening here, right? let's do the indifference curves in green.
01:08
The indifference curves, however, right, have a slope of the marginal utility of x over the marginal utility of y, which is equal to 1 over 1, right? that's the slope of the indifference curve.
01:24
And we can see that they're perfect substitutes, right? one x is worth just as much as one y...
