George Has a Fixed Income and Can Afford at Most

question 86

Essay

George has a fixed income and can afford at most 7 units of X if he spends his entire income on X. Alternatively, if he spends all his income on Y, he can afford at most 6 units of Y. Draw George's budget line and an indifference curve such that George chooses to buy 4 pieces of X. Martha has the same income and faces the same prices, yet she chooses to buy 2 pieces of X. In equilibrium, what is George's subjective value of X in terms of Y? What is Martha's?

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Definitions:

Determinism

The philosophical concept that every event or state of affairs, including every human decision and action, is the consequence of preceding events in accordance with the natural laws.

Egocentrism

The inability to differentiate between one's own perspective and another person's perspective, often leading to viewing the world solely from one's own point of view.

Representativeness Heuristic

A cognitive shortcut where the likelihood of an object belonging to a category is judged based on how similar it is to a typical case from that category.

Operational Definition

A detailed description of the procedures and measurements that researchers use to quantify behaviors or qualities for study.