Suppose that Johns preferences over baskets containing fish (good ), and silk (good ), are described by
Question:
Suppose that John’s preferences over baskets containing fish (good), and silk (good), are described by the utility function.
John’s corresponding marginal utilities are,and.
Useto represent the price of fish,to represent the price of silk, andto represent John’s income.
Question 1: Find John’s fish demand function, and John’s silk demand function. For the purposes of this question you should assume that
Question 2: Describe the relationship between John’s demand for fish and,
(a) John’s income;
(b) the price of fish;
(c) the price of silk.
Your answers should reference the demand function that you derived in question 1, and correctly apply the relevant terminology. You should continue to assume that.
Question 3: Now assume that. Find John’s fish demand function, and John’s silk demand function.
Question 4: Suppose that the price of silk isper item, and that John’s income is. What are the income and substitution effects if the price of fish increases fromper item, toper item?