Computing Ordinary Demands -a Cobb-Douglas Example.xbmab p22*().Substituting for x1* in p xp xm1 122**then givesxamab p11*().
Computing Ordinary Demands -a Cobb-Douglas Example.So we have discovered that the mostpreferred affordable bundle for a consumerwith Cobb-Douglas preferencesU xxx xa b(,)1212is(,)(),().**()xxamab pbmab p1212
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Computing Ordinary Demands -a Cobb-Douglas Example.x1x2xamab p11*()xbmab p22*()U xxx xa b(,)1212
Rational Constrained ChoiceWhen x1* > 0 and x2* > 0 and (x1*,x2*) exhausts the budget,and indifference curves have no‘kinks’, the ordinary demands are obtained by solving:(a) p1x1* + p2x2* = y(b) the slopes of the budget constraint, -p1/p2, and of the indifference curve containing (x1*,x2*) are equal at (x1*,x2*).