>> Business Economics
Jane receives utility from two goods, goat’s milk (m) and strudel (s), according to the utility function:
U(m,s) = m·s
a. Show that increases in the price of goat’s milk will not affect the quantity of strudel that Jane buys; that is show: ∂s/∂pm = 0.
b. Show also that: ∂m/∂ps = 0.
c. Use the Slutsky equation along with the Marshallian demand functions to show that the substitution and income effects exactly offset.