Consider the utility function: u(x1,x2) = x1 +x2.
1. Consider the utility function: u(x1,x2) = x1 +x2.
Find the corresponding Hicksian demand function
2. For each of the three utility functions below, find the substitution effect, the income effect, and the total effect that result when prices change from p = (2,1) to p' = (2,4). Assume the consumer has income I = 20.
(a) Before doing any calculation, make an educated guess about the relative magnitude of the three substitution effects and the three income effects to be found below.
(b) u(x1,x2) = x1 + x2
(c) u(x1,x2) = x1x2
(d) u(x1,x2) = min {x1,x2}.
(e) Rank the substitution effects and the income effects found above by their magnitude. To what extent do they conform to your guess?
Homework Answers
1. Consider the utility function: u(x1,x2) = x1 + x2. Find the corresponding Hicksian demand function....
1. Consider the utility function: u(x1,x2) = x1 + x2. Find the corresponding Hicksian demand function. 2. For each of the three utility functions below, find the substitution effect, the income effect, and the total effect that result when prices change from p = (2,1) to p' = (2,4). Assume the consumer has income I = 20. (a) Before doing any calculation, make an educated guess about the relative magnitude of the three substitution effects and the three income effects...
1. Consider the utility function: u(x1,x2) = x1 + x2. Find the corresponding Hicksian demand function....
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