Question: Suppose the utility function for goods q 1 and q 2 is given by U ( q 1 , q 2) = q 1 q

Suppose the utility function for goods q1 and q2 is given by

U(q1, q2) = q1q2 + q2

6

(a) Calculate the uncompensated (Marshallian) demand functions for q1 and q2

2

(b) Describe how the uncompensated demand curves for q1 and q2 are shifted by changes in

income (Y) or the price of the other good.

3

(c) Calculate the expenditure function for q1 and q2 such that

minimum expenditure = E(p1, p2, U)

4

(d) Use the expenditure function calculated in part (c) to compute the compensated demand

(Hicksian) functions for goods q1 and q2.

2

(e) Describe how the compensated demand curves for q1 and q2 are shifted by changes in

income (Y) or by changes in the price of the other good.

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