Question: 1. A consumer's utility function is u : mlmg. (a) Compute the demand functions for commodities 1 and 2. [10 points] Suppose p1 = 1,192

1. A consumer's utility function is u : mlmg. (a) Compute the demand functions for commodities 1 and 2. [10 points] Suppose p1 = 1,192 2 1 and m = 8. The price of commodity 1 then goes up from 1 to 4 while 332 remains 1. (b) Calculate the Slutsky substitution and income effects on the de mand for commodity 1. [15 points] (c) Calculate the Hicks substitution and income effects. [15 points] ((1) What is the minimum amount of income that must be given to the consumer so that even after p1 rises to 4 her utility remains unchanged? (This is the dollar value of the Hicks income effect, also known as the compensating variation). [10 points]

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