(a) A good is a luxury if it has a budget elasticity larger than 1, (i.e., good k is a luxury if εk ≡∂qk/∂m *m/qk> 1). Show that when a good is a luxury, then if a consumer’s total budget rises, theywill raise the share of their budget they allocate to the good. (b) Suppose m is the total budget a consumer has available to spend on three electronic products,a laptop, a phone and a tablet. Can all three of these goods simultaneously be luxuries? Whyor why not?

Let the 2 goods be k and j Budget constraint :- pk(k) + pj (j) = m share of good k in total…

Answered: (a) A good is a luxury if it has a…

Microeconomics

13th Edition

ISBN:9781337617406

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter7: Consumer Choice: Maximizing Utility And Behavioral Economics

Section: Chapter Questions

Problem 6QP

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(a) A good is a luxury if it has a budget elasticity larger than 1, (i.e., good k is a luxury if εk ≡
∂qk/∂m *m/qk> 1). Show that when a good is a luxury, then if a consumer’s total budget rises, they
will raise the share of their budget they allocate to the good.

(b) Suppose m is the total budget a consumer has available to spend on three electronic products,
a laptop, a phone and a tablet. Can all three of these goods simultaneously be luxuries? Why
or why not?

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