Consider Angie, whose utility function is u(x,x) = x12. Her income is $24. At first, the...
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Consider Angie, whose utility function is u(x₁,x₂) = x12. Her income is $24. At first, the price of x₁ was $1 and the price of x2 was $2. Annoyingly, the price of x₂ increased to $3! (a) Solve for Angie's demand functions for x and x2. (b) At the original prices, how much of x, and x2 is Angie demanding? (c) At the new prices, how much of x₁ and x₂ is Angie demanding? (d) How much income would you have to take from or give to Angie to keep her purchasing power constant after the price change? (e) Calculate the substitution effect of the change in p2 on demand for x2. (f) Calculate the income effect of the change in p2 on demand for .x₂2. (g) Do they sum up to the total change in x2? Consider Angie, whose utility function is u(x₁,x₂) = x12. Her income is $24. At first, the price of x₁ was $1 and the price of x2 was $2. Annoyingly, the price of x₂ increased to $3! (a) Solve for Angie's demand functions for x and x2. (b) At the original prices, how much of x, and x2 is Angie demanding? (c) At the new prices, how much of x₁ and x₂ is Angie demanding? (d) How much income would you have to take from or give to Angie to keep her purchasing power constant after the price change? (e) Calculate the substitution effect of the change in p2 on demand for x2. (f) Calculate the income effect of the change in p2 on demand for .x₂2. (g) Do they sum up to the total change in x2?
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Related Book For
College Accounting
ISBN: 978-1111528126
11th edition
Authors: Tracie Nobles, Cathy Scott, Douglas McQuaig, Patricia Bille
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