Consider a consumer with the following Cobb-Douglas utility function U(x,y) = x¹/³.y2/3 Assume that the consumer faces a price of $1 for y, and a total income/budget of I. The price of r is left unrestricted as pr. (a) Find the marginal rate of substitution, MRS, for this consumer. (b) Set up this consumer's utility maximization problem and find demand for x and y. (c) Solve (or rework) for income/budget I, in order to obtain the Engel curve of r. Is the slope of the Engel curve positive? Interpret: is the good normal or inferior?
Consider a consumer with the following Cobb-Douglas utility function U(x,y) = x¹/³.y2/3 Assume that the consumer faces a price of $1 for y, and a total income/budget of I. The price of r is left unrestricted as pr. (a) Find the marginal rate of substitution, MRS, for this consumer. (b) Set up this consumer's utility maximization problem and find demand for x and y. (c) Solve (or rework) for income/budget I, in order to obtain the Engel curve of r. Is the slope of the Engel curve positive? Interpret: is the good normal or inferior?
Chapter3: Preferences And Utility
Section: Chapter Questions
Problem 3.11P
Related questions
Question
Transcribed Image Text:3. Consider a consumer with the following Cobb-Douglas utility function
U(x, y) = x¹/3y2/3
Assume that the consumer faces a price of $1 for y, and a total
income/budget of I. The price of z is left unrestricted as pr
(a) Find the marginal rate of substitution, MRS, for this consumer.
(b) Set up this consumer's utility maximization problem and find
demand for 2 and y.
(c) Solve (or rework) for income/budget I, in order to obtain the
Engel curve of a. Is the slope of the Engel curve positive? Interpret:
is the good normal or inferior?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc
