1. If income is doubled and all prices are doubled, then the demand for luxury goods will more
than double. True or False?
2. Elmer's utility function is $u(x_1, x_2) = min\{ax_1, bx_2\}$ ($a > 0, b > 0$, and $a < b$). It means that
Elmer always chooses to consume one unit of $x_2$ to complement $a/b$ units of $x_1$. True or
False?
3. Mat's utility function is $u(x_1, x_2) = 2x_1 + 3x_2$. The price of $x_1$ is 4, the price of $x_2$ is 8. Mat's
income is 56. What is Mat's optimal consumption bundle $(x_1^*, x_2^*)$?
(a)
(2, 3)
(b)
(4, 8)
(c)
(14, 0)
(d)
(0, 7)
(e)
None of the above
