Suppose a consumer has utility function U(x, y) = 6vx + y a. Solve the utility maximization problem to find ordinary demand functions x*(P, Py,I) and y*(Px, Py, I) for general parameters. b. Choosing Px = Py 100, draw the income consumption curve and the Engel curves. From here on, you can focus only on the range of parameters where both goods are consumed. c. Calculate the own-price and income elasticities of demand for good x. Given this, can you predict what own-price compensated demand elasticity for x will be? d. Solve the expenditure minimization problem to find compensated demand for x and y, and verify your prediction from part (c).

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Your Question:
Suppose a consumer has utility function U(x, y) = 6vx + y
a. Solve the utility maximization problem to find ordinary demand functions x*(P, Py,I) and
y*(Px, Py, I) for general parameters.
b. Choosing Px = Py
100, draw the income consumption curve and the Engel curves.
From here on, you can focus only on the range of parameters where both goods are consumed.
c. Calculate the own-price and income elasticities of demand for good x. Given this, can you predict
what own-price compensated demand elasticity for x will be?
d. Solve the expenditure minimization problem to find compensated demand for x and y, and verify
your prediction from part (c).
Transcribed Image Text:Suppose a consumer has utility function U(x, y) = 6vx + y a. Solve the utility maximization problem to find ordinary demand functions x*(P, Py,I) and y*(Px, Py, I) for general parameters. b. Choosing Px = Py 100, draw the income consumption curve and the Engel curves. From here on, you can focus only on the range of parameters where both goods are consumed. c. Calculate the own-price and income elasticities of demand for good x. Given this, can you predict what own-price compensated demand elasticity for x will be? d. Solve the expenditure minimization problem to find compensated demand for x and y, and verify your prediction from part (c).
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