What is the price elasticity of demand, Macroeconomics

Consider the following utility function:

U = X1X2

Where X1 and X2 are quantities consumed of two goods. You are considering the actions of a consumer that maximizes utility. He or she has a fixed income m, and faces prices P1 and P2. The consumer spends all of its income on the two commodities.

A. Assuming that the consumer maximizes utility, what would be the exact condition showing the ratio of each good purchased by the consumer?

B. Please derive the demand functions for X1 and X2., providing an algebraic expression for each and a diagrammatic representation.

C. What is the price elasticity of demand for commodity 1? What is the price elasticity of demand for commodity 2?

For all of these questions, please provide an answer as well as a derivation or explanation for your result.

 

 

 

Posted Date: 3/18/2013 5:38:42 AM | Location : United States







Related Discussions:- What is the price elasticity of demand, Assignment Help, Ask Question on What is the price elasticity of demand, Get Answer, Expert's Help, What is the price elasticity of demand Discussions

Write discussion on What is the price elasticity of demand
Your posts are moderated
Related Questions
Determination of L in the cross model As firms will produce less than Y OPT , they require less labor than L OPT . We can determine exactly how much L they need in order to pro

: Suppose that 100 people live around a hazardous waste dump. If the people continue to live there for 20 years, one of them will likely contract a painful, non-fatal cancer that w

The below diagram demonstrates how all the variables are determined in classical model:  Figure: Determination of all the variables in the classical model a) Start at

trying to figure out how this works as I have two classes currently statistics/economics an

list of all theories of business cycle theories

what is difference b/w dynamic and static multiplier

The annual income from an apartment complex is $20,664. The annual expense is estimated to be $3,414. The apartment complex could be sold for $146,499 at the end of 10 years. If yo

Q. Money market in the AS-AD model? goods and the money market in the AS-AD model We begin by studying goods market and money market when prices are no longer constant. Fi

Q. Define market for overnight loans? The market for overnight loans Overnight interest rates are rates for loans over a single night - these are the shortest of all inte

Suppose that this year's the money supply is $500 billion, nominal GDP is $10 trillion, and real GDP is $5trillion. a. What is the price level? b. What is the velocity of money