For the following demand functionfor values of m gt 1a

Reference no: EM13372393

For the following demand function.

403_Plot the Engel curve.png

for values of m > 1.

a. Obtain Income elasticity of demand. Plot the Engel curve for p₁ = 1.

b. Is this a normal good?

c. Assuming that preferences are monotonic (then the individual always spends all its income), use the budget constraint to solve for x₂* (p₁, p₂, m).

d. The consumer faces the following prices and income level.

prices p₁ = 1, p₂ = 1.5 and income m = 5.

Calculate the quantity demanded for goods 1 and 2 at these prices and this income level.

e. Obtain income and substitution effects with Slutsky compensation when the price of good 1 drops to p_i = 0.5

Part-2

Assume preferences can be represented by the following utility function.

1950_Plot the Engel curve1.png

a. Is the utility function monotonic? Justify.

b. Set up the consumerís utility maximization problem for prices p₁, p₂ and income m (the general case)
c. Solve the problem. You will obtain demand functions x₁* (p₁, p₂, m) and x₂* (p₁, p₂, m) in terms of the parameters (p₁, p₂, m).

d. Graph the demand function for good 1 when the price of good 2 is p₂ = 2 and income is m = 200.

e. Obtain the change in consumer surplus when the price of good 1 goes from p₁ = 2 to p₁ = 4.

f. Again, assuming the price of good 1 increases to p_i = 4. Find the Compensating and the Equivalent Variations

g. For the same price increase, obtain the income and substitution effects on good 1, both with Slutsky and Hicks compensations.

Reference no: EM13372393

Questions Cloud

1consider a macroeconomy was initially at equilibrium level : 1.consider a macroeconomy was initially at equilibrium level of real gdp. using an aggregate demand and aggregate

1 what is the crowding - out effect example2 why were those : 1. what is the crowding - out effect? example?2. why were those who took out hybrid loans at far greater risk of

One of the offenders cited in the article is the royal : one of the offenders cited in the article is the royal economic societys economic journal which charges about 50 more

A 32-bit word on the little-endian computer has decimal : a 32-bit word on the little-endian computer has decimal value of 261. if it is transmitted to the big-endian computer

For the following demand functionfor values of m gt 1a : for the following demand function.for values of m gt 1.a. obtain income elasticity of demand. plot the engel curve for

Assume preferences can be represented by the following : assume preferences can be represented by the following utility functionux1 x2 x1 x22a. is the utility function

Part-1you are the owner of a supermarket that wants to : part-1you are the owner of a supermarket that wants to understand your clientiacutes preferences so that you can

Part-1assume preferences can be represented by the : part-1assume preferences can be represented by the following utility function ux1 x2 3 ln x1 ln x2a.nbsp is the

Suppose your community has one dominant insurer that : suppose your community has one dominant insurer that negotiates with a bunch of hospitals in your market where a bunch

User Account

All Pages