D.S.E paper 2005,question no. 15

[duck]

Hi Suneja.. :)

This is what i meant in that post:

We know, if there is no surcharge she will consume 5 units of Electricity.
Now, if Surcharge is imposed but on every unit excess of 4 units..then we can infer that she will definitely consume E=4. so, W=4 (as utility is min). Therefore, she is left with income of 2rs after surcharge.
So, we can write the budget constraint as: 2E+W=2
=> E=W= 2/3.
=> Total consumption of E = 4+2/3 =14/3

Your method is Correct.

[subhraminion]

In her method, we are also consuming W. Which would make the income left for further consumption to go down by 4 extra units. Shouldn't the BL be what you said?