Assume 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) Are X and Y perfect complements or perfect substitutes? Explain how you know.
b) Graph Dr. Slight’s budget constraint and preference mapping. Make sure to highlight the optimal bundle.
c) Will a change in income cause him to substitute X for Y, Y for X, or neither?
d) Holding his preferences constant, what must happen for him to consume both products simultaneously?