Question

Suppose the utility function for goods ?? and ?? is given by: u(x, y) = x0.5...

Suppose the utility function for goods ?? and ?? is given by: u(x, y) = x0.5 y0.5 a) Explain the difference between compensated (Hicksian) and uncompensated (Marshallian) demand functions. b) Calculate the uncompensated (Marshallian) demand function for ??, and describe how the demand curve for ?? is shifted by changes in income , and by changes in the price of the other good. c) Calculate the total expenditure function for ??.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

A).

Usually “uncompensated demand” curves shows the total effect of price change, => it contents the “IE” as well as the “SE” of price change but the “compensated demand” curves contents only the “SE” of price change, => for a normal good the “uncompensated demand” is flatter compare to the “compensated demand” curve.

Now, we derive the “uncompensated demand” curve from utility maximization problem and “compensated demand” curve from “expenditure minimization problem”.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Suppose that a consumer has the utility function given by: U(x,y)= (x^a)*(y^b) With prices p^x, p^y...
Suppose that a consumer has the utility function given by: U(x,y)= (x^a)*(y^b) With prices p^x, p^y and the income M, and where a>0, b>0. a) Maximize this consumer's utility. Derive Marshallian demand for both goods. b) Show that at the optimum, the share of income spent on each good does not depend on prices or income. c) Show that the elasticity of Marshallian demand for x is constant. d) For good x, use your answers to b) the elasticities of...
Assume that we have following utility maximization problem with quasilinear utility function: U=2√ x + Y...
Assume that we have following utility maximization problem with quasilinear utility function: U=2√ x + Y s.t. pxX+pyY=I (a)derive Marshallian demand and show if x is a normal good, or inferior good, or neither (b)assume that px=0.5, py=1, and I =10. Then the price x declined to 0.2. Use Hicksian demand function and expenditure function to calculate compensating variation. (c)use hicksian demand function and expenditure function to calculate equivalent variation (e) briefly explain why compensating variation and equivalent variation are...
1.54 The n-good Cobb-Douglas utility function is u(x) = A n i=1 x αi i ,...
1.54 The n-good Cobb-Douglas utility function is u(x) = A n i=1 x αi i , where A > 0 and n i=1 αi = 1. (a) Derive the Marshallian demand functions. (b) Derive the indirect utility function. (c) Compute the expenditure function. (d) Compute the Hicksian demands.
Suppose a consumer has the utility function u(x, y) = x + y. a) In a...
Suppose a consumer has the utility function u(x, y) = x + y. a) In a well-labeled diagram, illustrate the indifference curve which yields a utility level of 1. (b) If the consumer has income M and faces the prices px and py for x and y, respectively, derive the demand functions for the two goods. (c) What types of preferences are associated with such a utility function?
Jane’s utility function has the following form: U(x,y)=x^2 +2xy The prices of x and y are...
Jane’s utility function has the following form: U(x,y)=x^2 +2xy The prices of x and y are px and py respectively. Jane’s income is I. (a) Find the Marshallian demands for x and y and the indirect utility function. (b) Without solving the cost minimization problem, recover the Hicksian demands for x and y and the expenditure function from the Marshallian demands and the indirect utility function. (c) Write down the Slutsky equation determining the effect of a change in px...
Suppose the Utility function of the consumer is given by U = x + 5y^3 Suppose...
Suppose the Utility function of the consumer is given by U = x + 5y^3 Suppose the price of x is given by p x and the price of y is given by p y and the budget income of the consumer is given by I. Price of x, Price of y and Income are always strictly positive. Assume interior solution. a) Write the statement of the problem b) Compute the parametric expressions of the equilibrium quantity of x &...
Consider the following utility function: U = M in(X; Y ). (I) Find the income and...
Consider the following utility function: U = M in(X; Y ). (I) Find the income and substitution e§ects. (II) Draw the compensated and Marshallian demand curves.
Suppose that there are two goods, X and Y. The utility function is U = XY...
Suppose that there are two goods, X and Y. The utility function is U = XY + 2Y. The price of one unit of X is P, and the price of one unit of Y is £5. Income is £60. Derive the demand for X as a function of P.
Suppose your utility function is given by U(x,y)=xy2 . The price of x is Px, the...
Suppose your utility function is given by U(x,y)=xy2 . The price of x is Px, the price of y is Px2 , and your income is M=9Px−2Px2. a) Write out the budget constraint and solve for the MRS. b) Derive the individual demand for good x. (Hint: you need to use the optimality condition) c) Is x an ordinary good? Why or why not? d) Suppose there are 15 consumers in the market for x. They all have individual demand...
Q: Mike consumes only two goods: x and y. His Utility function is given by U(x,y)...
Q: Mike consumes only two goods: x and y. His Utility function is given by U(x,y) = 2x+2y Mike has an income of $200. The price of good y is $2. Suppose the price of good x changes from $1 to $2. 1. Find the compensating variation and explain your answer. Show the CV in a diagram. 2. Find the equivalent variation and explain your answer. Show the EV in a diagram.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT