A consumer's utility function is given by u (r_y) := r'/2y!/2 for any nonnegative r and y, representing the consumption quantities of goods r and y, respectively. Suppose that the price of good y is constantly ¢1, and that the consumer is given income m cedis (and nothing else). Denote p, for the price of good r. Based on the quantity demand i (p, m) for good r. a. Given that pz > 1/(4m), calculate (pz, m) and i (P2, Py, m), then use the Slutsky equation to deduce what the substitution effect r° (Pz; y) is equal to. b. Given that p, < 1/(4m), calculate i (P2, m) and i (Pz: Py; m), then use the Slutsky equation to deduce what the substitution effect r° (Pz, y) is equal to. What is vour interpretation of the vour rosult in a and habove?
A consumer's utility function is given by u (r_y) := r'/2y!/2 for any nonnegative r and y, representing the consumption quantities of goods r and y, respectively. Suppose that the price of good y is constantly ¢1, and that the consumer is given income m cedis (and nothing else). Denote p, for the price of good r. Based on the quantity demand i (p, m) for good r. a. Given that pz > 1/(4m), calculate (pz, m) and i (P2, Py, m), then use the Slutsky equation to deduce what the substitution effect r° (Pz; y) is equal to. b. Given that p, < 1/(4m), calculate i (P2, m) and i (Pz: Py; m), then use the Slutsky equation to deduce what the substitution effect r° (Pz, y) is equal to. What is vour interpretation of the vour rosult in a and habove?
Micro Economics For Today
10th Edition
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Tucker, Irvin B.
Chapter6: Consumer Choice Theory
Section6.A: Indifference Curve Analysis
Problem 2SQP
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Transcribed Image Text:A consumer's utility function is given by
u (r_y) := r'/2y}/2
for any nonnegative x and y, representing the consumption quantities of goods x and y, respectively.
Suppose that the price of good y is constantly ¢1, and that the consumer is given income m cedis
(and nothing else). Denote p, for the price of good r. Based on the quantity demand (p, m) for
good r.
a. Given that p, > 1/(4m), calculate i (Pz, m) and (Pz, Py, m), then use the Slutsky
equation to deduce what the substitution effect r° (pz, y) is equal to.
b. Given that p, < 1/(4m), calculate i (P, m) and i (P2, Py, m), then use the Slutsky
equation to deduce what the substitution effect r° (Pz; y) is equal to.
c. What is your interpretation of the your result in a and b above?
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