Lucy wants to buy meat (M) and broccoli (B) for her dinner. Her utility function is given
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Question:
Lucy wants to buy meat (M) and broccoli (B) for her dinner. Her utility function is given by U(M,B)=M^1/2 + 2B^1/2 and the prices of meat and broccoli are Pm and Pb.
A) Find Lucy's Hicksian demands for meat and broccoli
B) Find Lucy’s Expenditure function
C) Find the compensated own-price elasticity of broccoli
D) Suppose that Pb=1 and Pm=2. Lucy’s targeted utility is U=9. How much money does Lucy need to spend in order to achieve this utility?
E) Suppose that Pb=1 and Pm=2 and that Lucy's income equals your answer to the previous question. To reduce the consumption of meat, the government introduces a sales tax on it. The price of meat after the tax is p’m=2XPm. What is the substitution effect for meat (M)?
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