1. Think about a utility function U(x,y) =xy, the budget constraint is px*x +py*y= m. A. Please derive the expenditure function. If originally m = 8, px=1, py=4. Now px has increased to 2. B. Based on (A), after the price change, how much should be compensated to maintain his original utility level?
1. Think about a utility function U(x,y) =xy, the budget constraint is px*x +py*y= m. A. Please derive the expenditure function. If originally m = 8, px=1, py=4. Now px has increased to 2. B. Based on (A), after the price change, how much should be compensated to maintain his original utility level?
Chapter7: Consumer Choice: Maximizing Utility And Behavioral Economics
Section: Chapter Questions
Problem 6QP
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1. Think about a utility function U(x,y) =xy, the budget constraint is px*x +py*y= m.
A. Please derive the expenditure function.
If originally m = 8, px=1, py=4.
Now px has increased to 2.
B. Based on (A), after the
C. Use the Shaphard's Lemma to derive the Hicksian demand functions.
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