The choice of utility function depends on consumer preference which then determines the market behavior of the market.
Suppose the utility function of a consumer Cobb-Douglas utility function (CDF)
U(x₁, x₂) = x₁^3/5x₁^3/5. If p₁ = p₂ = 2 and I = 14

Calculate and Illustrate the Income and Substitution Effect when the price of good 1 increase by 100%
 
Calculate the Income Elasticity of Demand for both goods when the income increase by 100% and interpret your result.
 
Calculate the Price Elasticity of Demand for both Goods when the price increase by 100% and interpret your result.
 

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Sure I can help you with that 1 Calculate and Illustrate the Income and Substitution Effect when the price of good 1 increases by 100 First lets calculate the income and substitution effects Income Ef... View the full answer