question archive Consider the following expressions derived from the utility function of a 2 MU,= 31 a MU where x and y stand for the goods and y
Consider the following expressions derived from the utility function of a 2 MU,= 31 a MU where x and y stand for the goods and y
Subject:EconomicsPrice: Bought3
Consider the following expressions derived from the utility function of a 2 MU,= 31 a MU where x and y stand for the goods and y. Let pa be the price of good x and let p, be the price of good y, • Use the optimal consumption rule to obtain a function like this one: r = f(y, Pz, Py) • Use the optimal consumption rule to obtain a function like this one: y = f (I, PI,Py) • Consider now the budget constraint pz3 +Pyy = I. Combine the budget constraint with the two previous equations to derive two functions like these ones: = f (P2, 1) y = f(py, 1) What you have obtained is the demand of good 1 and the demand of good y. Please note that Px. Py, and I are known since we are assuming perfect competition. So it is possible to determine the demand of both goods depending on the prices and income. Consider that the consumer faces the following prices and income: 1 = 75 and P: = Py = 1. Adress the following questions: 1. How many units of good x and good yare consumed? 2. How does the consumption of both goods change if income doubles? 3. Consider the initial situation (I = 75 and P2 = Py = 1). How many units of good x and good y are consumed if the price of good y doubles 4. Consider the initial situation (I = 75 and pe = Py = 1). How many units of good r and good y are consumed if the price of good x is halved?
