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1. Alison and Carrem both like to eat Heels (93) and Turtles (3/) Their utility functions are identical: U(a:,y) = 1017+y2. (a) Calculate Alison and Carrem's Marshallian and Hicksian demands for Heels and Turtles. (b) Suppose now that their incomes are the same: I = 16 for both Alison and Carrem. The price of Heels is $4 while the price of Turtles is $2. However, Alison has a half off coupon for Heels (i.e., a coupon that allows her to buy all the Heels she wishes at half the posted price). How many Heels and Turtles will Carrem and Alison consume? (c) After studying MSC 511, Carrem thinks she might be able to buy the coupon from Alison and be happier because of it. What is the least Alison would take for the coupon? What is the most Carrem would pay for it? Is a trade possible? (Hint: To answer this question, you should think in terms of CV and EV.) ((1) Suppose instead that income was $32 for both women. What is the most Carrem would pay for the coupon? The least Alison would accept for it?
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