A1 (Demand and Slutsky, 25 Points) Marge has preferences represented + x where x is the...

  

Transcribed Image Text:

A1 (Demand and Slutsky, 25 Points) Marge has preferences represented + x where x is the by the utility function u(x,x) = 3x amount Marge consumes of good 1 and x consumes of good 2. Marge has an income of 20. is the amount Marge = min (3x, x) Lisa has preferences represented by u(x, x) where x is the amount Lisa consumes of good 1 and x is the amount Lisa consumes of good 2. Lisa has an income of 30. The price of good 1 is 4, the price of good 2 is 2. (a) What is Marge's demand, i.e. the solution to her utility maximisation problem? [3] (b) How does Marge's demand for both goods change if the price of good 1 increases to 7? [3] (c) For the demand of good 1, how much of this effect is attributed to the Slutsky substitution effect, how much to the income effect? [4] (d) What is Lisa's demand, i.e. the solution to her utility maximisation problem? [6] (e) How does Lisa's demand for both goods change if the price of good 1 increases to 9? [5] (f) For the demand of good 1, how much of this effect is attributed to the Slutsky substitution effect, how much to the income effect? [4] A1 (Demand and Slutsky, 25 Points) Marge has preferences represented + x where x is the by the utility function u(x,x) = 3x amount Marge consumes of good 1 and x consumes of good 2. Marge has an income of 20. is the amount Marge = min (3x, x) Lisa has preferences represented by u(x, x) where x is the amount Lisa consumes of good 1 and x is the amount Lisa consumes of good 2. Lisa has an income of 30. The price of good 1 is 4, the price of good 2 is 2. (a) What is Marge's demand, i.e. the solution to her utility maximisation problem? [3] (b) How does Marge's demand for both goods change if the price of good 1 increases to 7? [3] (c) For the demand of good 1, how much of this effect is attributed to the Slutsky substitution effect, how much to the income effect? [4] (d) What is Lisa's demand, i.e. the solution to her utility maximisation problem? [6] (e) How does Lisa's demand for both goods change if the price of good 1 increases to 9? [5] (f) For the demand of good 1, how much of this effect is attributed to the Slutsky substitution effect, how much to the income effect? [4]