Homework Answers
Total effect = SE + IE = -3.9 + 1 = -2.9
So, quantity of good 1 decreases by 2.9 units with decrease in its
price. So, good 1 is a giffen good because quantity of giffen good
decrease with decrease in price.
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A consumer has the demand function x* = x1(P1, m). When the price of good one...
A consumer has income M, and faces prices (for goods 1 and 2) p1 and p2....
A consumer has income M, and faces prices (for goods 1 and 2) p1 and p2. For each of the following utility functions, graphically show the following: (i) the Slutsky substitution and income e⁄ects when p1 decreases. (ii) the Hicks substitution and income e⁄ects when p1 decreases. (iii) the Marshallian and Hicksian demand curves for good 1: (a) perfect complements: U(x1 , x2) = min {4x1, 5x2} (b) quasi-linear: U(x1 , x2) = x^2/3 1 + x2
7. Jay's Utility function is given by U(x,z) = 3x10.2 x20.8 and P1=$2 and P2=$4 and...
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3. Suppose a consumer’s demand function for milk is x1 = 1/4 * m/p1, or (m/4p1),...
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5. Melissa’s utility function for the bundle (x,y) is U(x,y)=xy. Price of good x is p1=1, price of good 2 is p2=2 and income m=10. If the price of good 1 goes up to p1=2, but the rest remain the same....
5. Melissa’s utility function for the bundle (x,y) is U(x,y)=xy. Price of good x is p1=1, price of good 2 is p2=2 and income m=10. If the price of good 1 goes up to p1=2, but the rest remain the same. Derive: Total effect? Substitution effect? Income effect?
Assume a consumer is consuming x1 and x2. Price of good 1 is p1 and price...
Assume a consumer is consuming x1 and x2. Price of good 1 is p1
and price of good 2 is p2. Suppose the utility function of this
consumer is
1. Find the Hicksian demands for both goods 1 and 2. Show all of
your steps
2. Find the expenditure function. Show all of your steps
14*,'* = (*x*\x)n
1. Student A has preferences represented by U(x1,x2) = min{ax1,bx2}. Suppose good one has a special...
1. Student A has preferences represented by U(x1,x2) = min{ax1,bx2}. Suppose good one has a special tax. The government wants good one to be consumed as little as possible, so it imposes a tax on its price when more than x units are bought. Specifically, the price of good one is p1 if less than x units are bought and it is p1(1 + t) when buying more than x units (for all the units bought). Where t indicates the...
If the demand for good X increases when the price of good Y decreases, what can...
If the demand for good X increases when the price of good Y decreases, what can we say about the cross-price elasticity between these two goods, are they substitutes or complements to each other?
The utility function is u = x1½ + x2, and the budget constraint is m =...
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1. When a consumer has a Cobb-Douglas utility function given by u(x, y) = xa yb , their demand for good x is given by x∗...
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U(x, y) = x1ax2(1-a) Solve for the marshallian demands for x1 and x2, as functions of...
U(x, y) = x1ax2(1-a) Solve for the marshallian demands for x1 and x2, as functions of p1, p2, and m. (Hint: your solutions will be equations, not numbers). For x1 find the own-price elasticity and income elasticity. Suppose a = 0.2, m = 100, p1 = 2, and p2=8, find the quantities of x1 and x2. What happens to these quantities when p1 doubles to $4? What does this say about the price consumption curve (PCC)? 2. Suppose the price...
Assume a consumer is consuming x1 and x2. Price of good 1 is p1
and price of good 2 is p2. Suppose the utility function of this
consumer is
1. Find the Hicksian demands for both goods 1 and 2. Show all of
your steps
2. Find the expenditure function. Show all of your steps
14*,'* = (*x*\x)n
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