a) Choose X, and X, to max the utility fxn, '(X,X,)=chX;+Q-g}hX; st: M - R X, + P,X; a) Write down the demand functions for goods 1 and 2 b) Consider a price decrease for good 1 from R toP" . Write down the demand functions for good 1 when prices are P, and when prices drop from R toP" c) What is the compensating income, Mª associated with the price change? Obtain the SE and IE associated with the price change

a) Choose X, and X, to max the utility fxn, '(X,X,)=chX;+Q-g}hX; st: M - R X, + P,X; a) Write down the demand functions for goods 1 and 2 b) Consider a price decrease for good 1 from R toP" . Write down the demand functions for good 1 when prices are P, and when prices drop from R toP" c) What is the compensating income, Mª associated with the price change? Obtain the SE and IE associated with the price change

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter5: Income And Substitution Effects

Section: Chapter Questions

Problem 5.12P

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