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 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)...
The utility function is u = x1½ + x2, and the budget constraint is m = p1x1 + p2x2. Derive the optimal demand curve for good 1, x1(p1, p2), and good 2, x2(m, p1, p2). Looking at the cross price effects (∂x1/∂p2 and ∂x2/∂p1) are goods x1 and x2 substitutes or complements? Looking at income effects (∂x1/∂m and ∂x2/∂m) are goods x1 and x2 inferior, normal or neither? Assume m=100, p1=0.5 and p2=1. Using the demand function you derived in...
Find the optimal bundle for the following utility functions and for budget line (P1X1+P2X2=m) a) U(X1,X2)=X1X2 b) U(X1,X2)=X1^2X2^3 c) U(X1,X2)=X1^2+2X2 d)U(X1,X2)= ln (x1^3X2^4) e) U(X1,X2)= 2X1+X2 f) U(X1,X2)= min (2X1,X2)
3. Consider the following utility function, u(x1;x2)=min[xa1; bxa2]; 00 (a) [15 points] Derive the Marshallian demand functions. (Explain your derivation in details.) Does the Marshallian demand increase with price? Are the two consumption goods normal goods? (b) [15 points] Derive the Hicksian demand functions. Does the Hicksian demand increase with price? 3. Consider the following utility function, (a) [15 points] Derive the Marshallian demand functions. (Explain your derivation in details.) Does the Marshallian demand increase with price? Are the two...
Yam has the following utility function for Apples (X1) and Ice Cream (X2) U(X1,X2) = Min{3X1,X2}. Draw Yam’s indifference curves when she consumes 1 and 2 apples. Derive Yam’s demand functions for Apples and Ice Cream. Suppose Yam has an income of M = $120 and the prices of Apples and Ice Cream are p1 =$1, p2 =$1. What is Yam’s optimal consumption of Apples and Ice Cream? Suppose a quantity tax of $1 is imposed on Apples. Separate out the...
Consider the following utility function, u(x1;x2) = min [sqrt (x1); sqrt(ax2)]; where a > 0 a)Derive the Marshallian demand functions. (Explain your derivation in details.) Does the Marshallian demand increase with price? Are the two consumption goods normal goods? (b)Show two different ways to derive the Hicksian demand functions. Does the Hicksian demand increase with price?
Bob’s utility function is u(x1, x2) = 3x1 + x2, and he has income m = 10. The price of good 2 is p2 = 1. Let p1 denote the initial price of good 1, and let p 0 1 denote a new lower price of good 1, so p 0 1 < p1. (a) For what values (if any) of p1 and p 0 1 is the substitution effect on good 1 equal to zero? (b) For what values...
6. Modou has a utility function U(X1,X2) = 2X1 + X2 The prices of X1 & X2 are $1 each and Modou has an income of $20 budgeted for this two goods. a. Draw the demand curve for X1 as a function of p1.: b. At a price of p1 = $1, how much X1 and X2 does Modou consume?: c. A per unit tax of $0.60 is placed on X1. How much of good X1 will he consume now?:...
Suppose that a consumer has a utility function given by u(x1, x2) = 2x1 + x2. Initially the consumer faces prices (2, 2) and has income 24. i. Graph the budget constraint and indifference curves. Find the initial optimal bundle. ii. If the prices change to (6, 2), find the new optimal bundle. Show this in your graph in (i). iii. How much of the change in demand for x1 is due to the substitution effect? How much due to...