Question: = Continuing with Regan s behavior from Exercise 7 above, suppose now that M = 10 and that px 1/2. (a) What is Regan

= Continuing with Regan s behavior from Exercise 7 above, suppose now that M = 10 and that px 1/2. (a) What is Regan

= Continuing with Regan s behavior from Exercise 7 above, suppose now that M = 10 and that px 1/2. (a) What is Regan s optimal choice? (b) Find Regan s standard demand function and her compensated demand function for toothpaste, in this situation. (c) Suppose the price of toothpaste goes down to 1/3. Calculate Regan s welfare change using the difference in her utility levels, and compare it to what you would get using the notion of consumer s surplus. of r doe 7. Regan s utility function for toothpaste (good r) and other stuff (good y) is function for toothpaste. Is toothpaste a normal or an inferior good for Regan? acry) Inr+y. Assume that py= 1. Let M be her income. Derive her demand Graph the Engel curve for pr 1. 8. Continuing with Regan s behavior from Exercise 7 above, suppose now that M 10 and that p, = 1/2. (a) What is Regan s optimal choice? (b) Find Regan s standard demand function and her compensated demand func- tion for toothpaste, in this situation. (c) Suppose the price of toothpaste goes down to 1/3. Calculate Regan s welfare change using the difference in her utility levels, and compare it to what you would get using the notion of consumer s surplus.

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