Comparing Consumer Choice Models
A market analyst is modeling consumer preferences for two goods: streaming service subscriptions (S) and cups of coffee (C). They have two competing models for a typical consumer's utility function, assuming the quantities of S and C are always positive:
- Model A: U₁(S, C) = S⁰.⁵ * C⁰.⁵
- Model B: U₂(S, C) = 10 * ln(S) + 10 * ln(C)
The analyst needs to determine if it matters which model they use to predict the consumer's optimal consumption bundle (the combination of S and C that maximizes utility given a budget).
Will Model A and Model B always lead to the same optimal consumption bundle for any given set of prices and budget? Justify your answer by analyzing the mathematical relationship between the two utility functions.
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Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Related
Consider two different utility functions for a consumer who consumes two goods, x and y: U₁(x, y) = x²y and U₂(x, y) = 2ln(x) + ln(y). Assuming the quantities of both goods are positive, which of the following statements accurately describes the relationship between the preferences represented by these two functions?
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Comparing Consumer Choice Models
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