Question: Consider a consumer with Cobb-Douglas preferences over two goods, x and y described by the utility function u(x, y) = 2/5ln(x) + 3/5ln(y) Assume the

Consider a consumer with Cobb-Douglas preferences over two goods, x and y described by the utility function u(x, y) = 2/5ln(x) + 3/5ln(y)

  1. Assume the prices of the two goods are initially both $1, and her income is $100. Obtain the consumer's demands for x and y.
  2. If the price of good x increases to $2, what is the impact on her demand for good x?
  3. Decompose this change into the substitution effect, and the income effect. How big is each?

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