Solved by verified expert:Problems involving perfect substitutes are the easiest tosolve—all you have to do is figure out which good is least expensive given theutility provided. When the goods are identical (Exxon and Chevron), this is easy—the consumer will choose to spend all of his or her budget on the good with thelowest price.6 If Exxon costs $3 per gallon, and Chevron is $3.25, he or she will buyonly Exxon. If the gasoline budget is $30, 10 gallons will be bought.
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ECON 300
All Questions from “Problems”
1. Chapter 2, #2.5
2. Chapter 2, #2.10
Perfect Substitutes Problems involving perfect substitutes are the easiest to
solve—all you have to do is figure out which good is least expensive given the
utility provided. When the goods are identical (Exxon and Chevron), this is easy—
the consumer will choose to spend all of his or her budget on the good with the
lowest price.6 If Exxon costs $3 per gallon, and Chevron is $3.25, he or she will buy
only Exxon. If the gasoline budget is $30, 10 gallons will be bought.
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