Re: DSE 2013 Paper Discussion

Posted by rongmon on Jun 01, 2014; 11:00am
URL: http://discussion-forum.276.s1.nabble.com/DSE-2013-Paper-Discussion-tp7584703p7591237.html

Jack

Pasting Subhayu's earlier post below for convenience. I guess the paper series is different.

This post was updated on May 26, 2014; 10:42am.

Q41) The consumer will be indifferent between the two bundles if the utility derived under optimum situation is equal in bothe the cases.
Now consider case 1: the optimum demand bundles are x1=x2=M/(p1+p2)=M/3.
In case 2: M=px*X+py*Y,
or, M=1*X+(2-θ)*Y+T.
or, M-T=1*X+(2-θ)*Y.
The optimum bundles in this case is given by x1=x2=(M-T)/(1+(2-θ))=(M-T)/(3-θ).
Utilities will be equal implies, M/3=(M-T)/(3-θ)......................(a).
from (a) we can derive, θ=3T/M (option b).