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Consider a two good economy. A consumer has a utility function u(x1, x2) = exp (x1x2)....

Consider a two good economy. A consumer has a utility function u(x1, x2) = exp (x1x2). Let p = p1 and x = x1.

(1) Compute the consumer's individual demand function of good 1 d(p).

(2) Compute the price elasticity of d(p).

Compute the income elasticity of d(p).

Is good 1 an inferior good, a normal good or neither? Explain.

(3) Suppose that we do not know the consumer's utility function but we know that the income elasticity of his demand is zero. What can we guess about his preferences?

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