Demand

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Sample problems from class 1

Problem 1: Plot {(x,y)| min {x+2y, 2x+y} = 1, x 0, y 0}
Solution: Since {(x,y)| min {x+2y, 2x+y} = 1, x 0, y 0} {(x,y)| x+2y=1, x 0, y 0}
{(x,y)| 2x+y=1, x 0, y 0}
And we know how to plot {(x,y)| x+2y=1, x 0, y 0} {(x,y)| 2x+y=1, x 0, y 0}
So, Step 1 is to Plot {(x,y)| x+2y=1, x 0, y 0} {(x,y)| 2x+y=1, x 0, y 0}
1.2
1
0.8

x+2y=1 and
2x+y>1

0.6

x+2y>1 and
2x+y=1

0.4

x+2y=1 and
2x+y<1

0.2

x+2y<1 and
2x+y=1

0
0.00

0.20

0.40

0.60

0.80

1.00

1.20

Since, along green and purple line graphs the function min{x+2y, 2x+y} < 1, we remove this
part. And along brown and blue line graphs the function min{x+2y, 2x+y} = 1, we keep this part.
And we get the following graph:
1.2
1
0.8
0.6

x+2y=1 and
2x+y>1

0.4

x+2y>1 and
2x+y=1

0.2
0
0.00

0.20

0.40

0.60

0.80

1.00

1.20

Demand

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Problem 2: Now, we are interested in another problem which is to determine the demand
correspondence if the consumer has a utility function u(x, y) = min {x+2y, 2x+y}
Using the indifference curve above, we can have five different possibilities:
1.2
1
0.8

x+2y=1 and
2x+y>1

0.6

x+2y>1 and
2x+y=1

0.4

Budget line
(px/py)>2

0.2
0
0.00

0.50

1.00

1.50

1.2
1
0.8

x+2y=1 and
2x+y>1

0.6

x+2y>1 and
2x+y=1

0.4

Budget line
(px/py)=2

0.2
0
0.00

0.50

1.00

1.50

1.2
1

x+2y=1 and
2x+y>1

0.8

x+2y>1 and
2x+y=1

0.6
0.4

Budget line
(1/2)<(px/py)
<2

0.2
0
0.00

0.50

1.00

1.50

Demand

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1.2
1
0.8

x+2y=1 and
2x+y>1

0.6

x+2y>1 and
2x+y=1

0.4

Budget line
(1/2)=(px/py)

0.2
0
0.00

0.50

1.00

1.50

1.2
1
0.8

x+2y=1 and
2x+y>1

0.6

x+2y>1 and
2x+y=1

0.4

Budget line
(1/2)>(px/py)

0.2
0
0.00

0.50

1.00

1.50

Graphical method above give the following demand correspondence for x:

x (px, py, m) = m/px , if px/ py <

= [m/px ,m/(px+py)], if px/ py =
= m/(px+py), if < px/ py < 2
= [0, m/(px+py)], if px/ py = 2
= 0, if px/ py > 2