CLASSWORK 4For the Utility function and demand functions:U(x, y) = x0.5 + y0.5Ix(px. Py, 1) =y (Px₂ Py, 1) =Px(1 +PxPy¹)IPx (1 + px ¹py)1. Calculate the elasticities of the Marshallian demand functionfor good 1.2. Demonstrate the following:a. Homogeneity in terms of the Marshallian demand elasticitiesb. Engel aggregationc. Cournot aggregation3. Calculate the compensated price elasticityANSWER 2 AND 3 ONLY

Given: U(x,y) = x0.5y0.5 x(px,py,I)=Ipx(1+pxpy-1) y(px,py,I)=Ipx(1+px-1py)

Answered: For the Utility function and demand…

For the Utility function and demand functions: U(x, y) = x0.5 + y0.5 I Px(1 + PxPy¹ x(Px, Py, 1) = = y (px, py, 1) = Px(1 + px¹Py) 11' CUL

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter5: Income And Substitution Effects

Section: Chapter Questions

Problem 5.5P

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Concept explainers

Form Utility

The term utility in general refers to the satisfaction earned from usage of a particular product or service. Utility always plays an important role because it influences various important elements like demand & thereby the price of the good or service as well. Though utility is not easy to measure, various types of economic models can be used indirectly. There can be various types of utilities like economic utility, marginal utility, cardinal utility, form utility.

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CLASSWORK 4
For the Utility function and demand functions:
U(x, y) = x0.5 + y0.5
I
x(px. Py, 1) =
y (Px₂ Py, 1) =
Px(1 +PxPy¹)
I
Px (1 + px ¹py)
1. Calculate the elasticities of the Marshallian demand function
for good 1.
2. Demonstrate the following:
a. Homogeneity in terms of the Marshallian demand elasticities
b. Engel aggregation
c. Cournot aggregation
3. Calculate the compensated price elasticity
ANSWER 2 AND 3 ONLY

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