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# Exam 1 - Practice Answers - Midterm Exam Eco 701 Fall 2009...

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I = p x x + p y y , we get: y * = I p y - 1 2 αp x βp y + 1 2 p 2 x βp 2 y 2. Find the compensated demand functions for each good. Answer: Set- ting up the Lagrangian “in reverse” and differentiating gives: ∂L ∂x = p x + λ ( α - 2 βx ) = 0 ∂L ∂y = p y - λ = 0 Solving these equations in the same way outlined above gives the same exact answers as before.
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