Answered: To calculate Hicksian demand (also… | bartleby

Microeconomic Theory

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter4: Utility Maximization And Choice

Section: Chapter Questions

Problem 4.14P

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Question

To calculate Hicksian demand (also compensated demand), income m" is used, which keeps the
utility level constant after a price change, so that m" is implicitly defined by
u(x(p, m)) = u(x(p', m))
%3D
2/3 1/3
A consumer with income m=12 has the utility function u:R2+>R+ given by u (x1, x2) = x x,
The price of good 1 changes from p1=1 to p'1=8.
Note: the optimal decision is *1(P1, P2, m)
r2(P1, P2, m):
3
Pi
3.
P2
How high is m-?
Choose one or more answers:
a.m=48.
b.m"=12.
c.m=36.
d.m"=24.

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