Suppose that Dr. Slight has $100 to spend on goods X and Y. Each good costs $1. Dr. Slight’s preferences are such that he will exchange one unit of Y for two units of X to maintain his wellbeing, regardless of how much of each he is currently consuming.
a) Will a change in income cause him to substitute X for Y, Y for X, or neither?
b) Are X and Y perfect complements or perfect substitutes? Explain how you know.
c) Graph Dr. Slight’s budget constraint and preference mapping Make sure to highlight the optimal bundle.
d) Holding his preferences constant, what should happen for him to consume both products simultaneously?