10. Assume that a consumer's income is high enough so that with quasilinear preferences, her demand...

  

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10. Assume that a consumer's income is high enough so that with quasilinear preferences, her demand 134 curve for good 1 is given by the equation MU₁ (x₁) = P₁. Using the Slutsky equation (Chapter 4 appendix), show that the total effect of a change in p1 on her desired consumption of good 1 is equal to the substitution effect. Slutsky equation Denote the demand for good I by X₁, the price of good j by P₁, income by M, and utility by U. The Slutsky equation is where дх; дрj dpj дх; и _axi \u -* др where - X; Jx; дхi u is the substitution effect and am aM is the income effect. 10. Assume that a consumer's income is high enough so that with quasilinear preferences, her demand 134 curve for good 1 is given by the equation MU₁ (x₁) = P₁. Using the Slutsky equation (Chapter 4 appendix), show that the total effect of a change in p1 on her desired consumption of good 1 is equal to the substitution effect. Slutsky equation Denote the demand for good I by X₁, the price of good j by P₁, income by M, and utility by U. The Slutsky equation is where дх; дрj dpj дх; и _axi \u -* др where - X; Jx; дхi u is the substitution effect and am aM is the income effect.

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Demand for good 1 is given by the equation MU 1 x 1 p 1 ... View the full answer