(d) The preferences of a consumer with utility function U (x1, x2) = (1+x1)(1+x2) are convex. [Note: You may assume that consumption is confined to the non-negative quadrant of R2, i.e. x1 >0 and x2 > 0]. (e) Consider the Slutsky decomposition of a change in demand for good i as the price of good j changes: əz" (p,u*) _ T:(p, v*) dr:(P.y") ду dx:(p,y*) This Slutsky decomposition is general enough to allow for a situation where good i (an inferior good) is a gross substitute for good j (a normal good). (f) The degree of homogeneity in prices of the Marshallian demand function x;(p, y) : a y a+B p: implies that there is no change in the demand for good i as prices increase.

(d) The preferences of a consumer with utility function U (x1, x2) = (1+x1)(1+x2) are convex. [Note: You may assume that consumption is confined to the non-negative quadrant of R2, i.e. x1 >0 and x2 > 0]. (e) Consider the Slutsky decomposition of a change in demand for good i as the price of good j changes: əz" (p,u) _ T:(p, v) dr:(P.y") ду dx:(p,y*) This Slutsky decomposition is general enough to allow for a situation where good i (an inferior good) is a gross substitute for good j (a normal good). (f) The degree of homogeneity in prices of the Marshallian demand function x;(p, y) : a y a+B p: implies that there is no change in the demand for good i as prices increase.

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Consumer Choice Theory

Section: Chapter Questions

Problem 11SQ

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