isi 2006 me 2 DOUBT

[SHIKHA]

An individual enjoys bus ride. However, buses emit smoke which he
dislikes. The individual’s utility function is: ) U = U(x,s , where  x is the
distance (in km) traveled by bus and s is the amount of smoke consumed
from bus travel.
(a) What could be the plausible alternative shapes of indifference curve
between x and s?
(b) Suppose, smoke consumed from bus  travel is proportional to the
distance traveled: s = α x ( α is a positive parameter). Suppose further
that the bus fare per km is  p and that the individual has money
income M to spend on bus travel. Show the budget set of the consumer
in an (s, x) diagram.
(c) What can you say about an optimal choice of the individual? Will he
necessarily exhaust his entire income on bus travel?

GUYS WHAT ANSWERS ARE U GETTING??????

[SINGHAM]

Is (b) has answer px+0s=M or px=M ?

Is he going to spend all his income on bus?

Please verify!

[SINGHAM]

@Vaibhav,  please help!

[Dreyfus]

Singham I also think so....price line should be entire x axis with limit being M ....but I m not very sure

[SINGHAM]

Thank you so much, Vaibhav, you have been very helpful.

[The Villain]

@Shikha m getting d foll
a his IC will be concave
b px+ax=M
c x=M/p+a
lower the value of alpha..the more tolerant he is to smoke..

[Granpa Simpson]

His budget set will be all points on the line s=alpha*x upto the point of intersection of px=M and s=a*x.

[Granpa Simpson]

This is because his budget set cannot be defined unless s=a*x is incorporated i.e he only has those points to consume where px<=M st s=a*x

[Shefali]

pls help with q 2 of the same paper..

[SINGHAM]

Thank you, so much, Shubhayu.

[Dreyfus]

Ron and subhayu...smoke is negative externality associated with bus ride,x, and also the price of this externality cannot be in monetary terms..then why it should be considered in budget constraint?

[The Villain]

I think beaz it is directly affecting his utility...Since he enjoys bus ride bt at the same time the smoke is also reducing his utility.So thats why i included it.

[Granpa Simpson]

May be my logic is wrong..but I personally think that since budget set is the set of possible points given his income in this case his budget line is given by M=px..but if he consumes x he has to necessarily consume a*x amount of smoke, so he cannot choose any of the combinations, he can only choose from those combination where s=a*x holds as well as p*x<=M holds..all the points where s<a*x and s>a*x he cannot choose..his only option is to choose from s=a*x till the point where the two lines intersect.

[Granpa Simpson]

He cannot choose any point where s not equal to a*x because for any x he will have to necessarily consume a*x amount of smoke..so any point where s not equal to a*x does not come under his budget constraints..because budget constraint gives the combination of goods that he can consume given his money income..in this case he cannot consume any bundle where s not equal to a*x, so they do not come under the budget set given his money income and has to excluded from the set.

[Dreyfus]

Yes I agree with u..constraint is there on budget constraint.....but in x and s space how it will look like...?

[Granpa Simpson]

In this case the budget set will be points on the line s=a*x, till the point of intersection of s=a*x and px=M.

[Dreyfus]

OK..got it..thanks buddy

[Granpa Simpson]

My pleasure bro..:)