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Unformatted text preview: For the expenditure function we just replace the compensated demands we have found into E = p x X + p Y Y . E = P X exp(U(1 )ln((1 )P X / P Y )) + P Y exp(U ln( P Y /(1 )P X )) E = [ ] [ ]+Px Py U Py Py Px U Px ) 1 /( ) exp( / ) 1 ( ) exp( 1= 1 1 ) 1 ( ) exp( Py Px U E b) From E* we can solve directly for the utility level U = 1 1 ) 1 ( ) exp( Py Px I U =1 1 ) 1 ( Py Px I Ln U c) Solution for X: From the compensated demand: [ ]== 1 / ) 1 ( ) exp( )) / ) 1 ln(( ) 1 exp(( ) exp( Py Px U X Py Px U X Plugging back the Indirect Utility function we get: X= I/Px The same process for Y yields: Y=(1 )I/Py...
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 Spring '08
 cunningham
 Utility

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