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What is the sign and interpretation of... ∂2U/∂x2x1 if x1 and x2 are complements= ∂2U/∂x2x1 if...

What is the sign and interpretation of...

∂2U/∂x2x1 if x1 and x2 are complements=

∂2U/∂x2x1 if x1 an d x2 are substitutes
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Answer #1

Ans: The perfect substitutes are those goods which can be used in place of each other.

The perfect complements are those goods which are used together.

The double partial derivative of x2 wrt x1 is positive means the marginal utility of x2 has a positive effect when x1 is consumed, perfect complement goods.

The double partial derivative of x2 wrt x1 is negative means the marginal utility of x2 has a negative effect when x1 is consumed, perfect substitute goods.

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