Ps3 - Problem Set#3 1 Basics Consider the utility function u = x α y 1 α For this utility function find 1 Demand functions 2 Compensated Demand

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Problem Set #3 1 Basics Consider the utility function u = x α y 1- α . For this utility function, find: 1. Demand functions. 2. Compensated Demand functions. 3. The Expenditure function. 4. The Indirect Utility function. 5. Using your expressions above and the Slutsky equation, develop math- ematical expressions for the size of the income effect and the size of the substitution effect as functions of prices and income. 2 Applications Consider a situation in which p x = $5, p y- $10, I = $100, and α = 1 2 . (Note that if you couldn’t get answers in the previous section, you might be able to for the case α = 1 2 .) 1. Using the indirect utility function, find the consumer’s utility at the given prices and income level. Using the demand functions, find the consumer’s consumption level of each good. 2. Suppose that p x rises to $10. How much of each good is the con- sumer now consuming? Using the indirect utility function, find the consumer’s utility at the new price....
View Full Document

This note was uploaded on 11/12/2009 for the course ECONOMICS 701 taught by Professor Baker during the Spring '09 term at CUNY Hunter.

Page1 / 3

Ps3 - Problem Set#3 1 Basics Consider the utility function u = x α y 1 α For this utility function find 1 Demand functions 2 Compensated Demand

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online