Suppose that i’s preferences over goods x and y are represented by the following utility function Ui(x, y)=x^0.8·y^0.2. Let m denote the consumer’s income, p denote the price of good x and let the price of good y equal 1.
Suppose that i’s preferences over goods x and y are represented by the following utility function Ui(x, y)=x^0.8·y^0.2. Let m denote the consumer’s income, p denote the price of good x and let the price of good y equal 1.
Chapter5: Income And Substitution Effects
Section: Chapter Questions
Problem 5.5P
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Suppose that i’s preferences over goods x and y are represented by the following utility function Ui(x, y)=x^0.8·y^0.2. Let m denote the consumer’s income, p denote the price of good x and let the price of good y equal 1.
a) Find the Marshallian demand functions for goods x and y.
b) Show how each of the demand function is affected by a change in the price of good x.
c) Which of the goods is an inferior good?
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