1. Consider two goods, good 1 and good 2. The consumer’s utility function is given by U(x1,x2)=V(x1)+x2.

1. Derive the ordinary demand function of good 1.
2. When the market price of good 1 is given P1=P1' , derive the consumer’s surplus.
3. If the price is changed to P1=P1", prove that the change measured by consumer’s surplus is the same as the Compensating variation. Also prove that it is the same as Equivalent variation.

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Deriving the Demand Function and Consumers Surplus 1 Deriving the Demand Function The consumers utility function is Ux1x2 Vx1 x2 where Vx1 is a function of good 1 only This indicates a separable utili... View the full answer