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Unformatted text preview: 1, i.e., x (( p 1 , 2 ) , 1 ) = ( 1 /( 2 p 1 ) , ( 1 p 1 )/( 2 p 1 )) . The above preference relation is monotonic but not continuous. However, we can construct a close continuous preference that leads to demand that is increasing in p 1 in a similar domain. Let ( t ) be a continuous and increasing function on [ 1 , 1 + ] where > 0, so that ( t ) = 0 for all t 1 and ( t ) = 1 for all t 1 + . The utility function u ( x ) = ( ( x 1 + x 2 )( x 1 + 4 x 2 )) + ( 1 ( x 1 + x 2 )( x 1 + x 2 )) is continuous and monotonic. or close to 0, the function u = u except in a narrow area around the set of bundles for which x 1 + x 2 = 1....
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 Fall '10
 aswa

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