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              Instructions: Answer all questions QUESTION ONE The utility function for a consumer utility is U=30Q11/2Q21/2....

             

Instructions: Answer all questions

QUESTION ONE

  1. The utility function for a consumer utility is U=30Q11/2Q21/2. If the price per unit of Q1 is Ksh10 and Ksh5 per unit of Q2, determine quantities Q1and Q2 that the consumer should have to maximize utility if the consumer Ksh350 budgeted.                         
  2. Assuming the two goods X and Y and two persons, analyze the exchange of goods between the two using the Edge worth Box framework indicating the Pareto efficient allocation.
  3. Clearly describe substitution effect and income effect for a fall in price for a normal good and an inferior good.                                                                                            

             

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