A consumer has the following utility function: U (x, y) = (x + a) (y + b) Prices of the two goods x and y respectively are px and py and the consumer has income m. We assume that all prices and income are strictly positive. Furthermore, throughout this question we assume that m is high enough so that both x and y are strictly positive in equilibrium. (a) Solve the consumer’s optimization problem and express the demand for the two goods in terms of prices and income.
A consumer has the following utility function: U (x, y) = (x + a) (y + b) Prices of the two goods x and y respectively are px and py and the consumer has income m. We assume that all prices and income are strictly positive. Furthermore, throughout this question we assume that m is high enough so that both x and y are strictly positive in equilibrium. (a) Solve the consumer’s optimization problem and express the demand for the two goods in terms of prices and income.
Chapter6: Consumer Choice Theory
Section: Chapter Questions
Problem 5SQ
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A consumer has the following utility function: U (x, y) = (x + a) (y + b) Prices of the two goods x and y respectively are px and py and the consumer has income m. We assume that all prices and income are strictly positive. Furthermore, throughout this question we assume that m is high enough so that both x and y are strictly positive in equilibrium. (a) Solve the consumer’s optimization problem and express the demand for the two goods in terms of prices and income.
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