Full Question 1: 1. Consider a consumer with the utility function u(x, x) = ln(x) +...
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Full Question 1: 1. Consider a consumer with the utility function u(x₁, x₂) = ln(x₁) + x₂ and the budget constraint p₁x₁ + P₂x₂ = m. Suppose good 1 represents coffee and good 2 represents everything else consumed. a. b. C. d. Derive the consumer's demand functions for x₁ and x2 using constrained optimization. Show all working. [20 marks] What do the resultant demand functions suggest about the consumer optimal choices? [5 marks] Calculate the optimal demand for both goods if income, m = $30, price of coffee, p₁ = $2, and price of everything else, p2 = $6. [2 marks] Consider a case where a quantity tax on coffee is introduced at t = $1. Explain how this affects the consumer's optimal choice. [5 marks] Full Question 1: 1. Consider a consumer with the utility function u(x₁, x₂) = ln(x₁) + x₂ and the budget constraint p₁x₁ + P₂x₂ = m. Suppose good 1 represents coffee and good 2 represents everything else consumed. a. b. C. d. Derive the consumer's demand functions for x₁ and x2 using constrained optimization. Show all working. [20 marks] What do the resultant demand functions suggest about the consumer optimal choices? [5 marks] Calculate the optimal demand for both goods if income, m = $30, price of coffee, p₁ = $2, and price of everything else, p2 = $6. [2 marks] Consider a case where a quantity tax on coffee is introduced at t = $1. Explain how this affects the consumer's optimal choice. [5 marks]
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Full Question 1 1 Consider a consumer with the utility function u x x 2 In x x 2 and the budget constraint p x P 2 x 2 m Suppose good 1 represents coffee and good 2 represents everything else consumed ... View the full answer
Related Book For
Cornerstones of Financial and Managerial Accounting
ISBN: 978-1111879044
2nd edition
Authors: Rich, Jeff Jones, Dan Heitger, Maryanne Mowen, Don Hansen
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