Question suppose the utility function for linda is given by, Ask an Expert

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Question: Suppose the utility function for Linda is given by u(x₁, x₂) = log x₁ + x₂and her budget constraint is given by p₁x₂ + p₂x₂ = m

(a) Derive the demand function for Linda for both goods. (Hint: the demand of any good can not be negative!)

(b) Write down the inverse demand function for good 1 when p2 = 1 and m = 5.

(d) Now suppose her income is still m but price of good 1 has gone up to p^1 , show the Slutsky decomposition of substitution and income effect in a diagram in the x₁- x₂ plane. Label the two axes and all curves properly. Show all directions of the movement of consumption bundles.

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Microeconomics, Economics

Category:- Microeconomics
Reference No.:- M92586834

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