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Unformatted text preview: Problem Set #2 1 Basics For the first five utility functions below, find the demand functions. 1. u ( x,y ) = x 2 y 3 2. u ( x,y ) = ( x- 2)( y- 3) 3. u ( x,y ) = 2 ln x + 3 ln y 4. u ( x,y ) = x 2 3 y 5. u ( x,y ) = x 1 2 y 1 2 6. Find the indirect utility function associated with 1 above. 7. Find the indirect utility function associated with 5 above. 8. If you have done the problems correctly, your answers to 1, 3, and 4 should be identical. Explain in words why this is the case. 9. For the utility function in 4, find the expenditure function - an expres- sion for the amount of income necessary to give the consumer a level of utility u given prices. (That is, minimize E = p x x + p y y subject to the constraint that u = u ( x,y )). 2 Word Problems 1. Suppose that an individual has utility function u ( x,l ) = ( x- x ) 1- α l α , where x denotes consumption of goods while l denotes leisure time; x and α are parameters of the utility function. The individual’s total income is I = we...
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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.
- Spring '09