Calculate the income effect of the price change

Reference no: EM132200935

Question: A consumer has the utility function U(x,y) = Î±ln x + ln y.

a) Find the Marshallian and Hicksian demand functions

b) Set Î±=2, Px=2, Py=1 and I = 30. Find the best bundle that the consumer can afford. Illustrate the best bundle in an indifference curve diagram.

c) Lower Px to 1. Find the new best bundle and illustrate the new bundle and budget line in your diagram.

d) Use your Hicksian demands to calculate the substitution effect of the price change.

e) Calculate the income effect of the price change.

f) Verify that the Slutsky equation holds for your demand functions. You need only verify it for the own price derivative of x and the cross price derivative of y.

Reference no: EM132200935

Questions Cloud

Define a function immpairsbool : Define a function immPairsBool(..) which receives a string (containing letters, digits or special characters) and returns the Boolean

Define a function named numsinrange : Define a function named numSinRange(..) which receives as parameter a list (which may be empty) of positive integer numbers (lnum) and returns one list (lres).

The string should be converted to a character array : Write a Java program that provides searching a specific character in a string. The program asks the user which character to search for in the character array.

Display a message indicating so : Write out a pseudocode that will have two parallel array. One will be a String array named people that is initialized with the names of seven of your friends

Calculate the income effect of the price change : Calculate the income effect of the price change. Verify that the Slutsky equation holds for your demand functions. You need only verify it for the own price.

Design a function named feettoinches : Design a function named feetToInches that accepts a number of feet as an argument, and returns the number of inches in that many feet.

Simple synthesis procedure to produce bcnf tables : Apply the simple synthesis procedure to produce BCNF tables using the following FD list. Show the results of each step in your analysis.

How has the firm differentiated itself : Choose one industry you are familiar with, such as department stores, casual dining chains, shoes, personal computers, airline, or automobiles, etc.

Why capitalism reaches a stationary state : Compare Smith with Ricardo/Malthus and Mill in terms of their explanations of the growth phase of capitalism, why capitalism reaches a stationary state.

User Account

All Pages