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Economics

Ms Ramirez has the following utility function: U(x,y)= ln(x)+ln(y). Her total income is equal to I and she faces prices Px for good x and Py for good y.

a) Calculate the Marshallian demands and Hicksian demands.

b) Find the expenditure function.

c) Suppose Px=10, Py=1 and I=22. If Px increases by 1%, what is the percentage change in the Marshallian demand functions for the goods x and y? What is the percentage change in the Hicksian demand functions for the goods x and y? (Hint: compute the elasticities)

d) Are x and y gross substitutes? Are they net substitutes?

e) How much additional income is necessary in order to compensate Ms Ramirez for the price change? (Hint: use the compensating variation)

f) Suppose that the price didn't change. What is amount of income that Ms Ramirez has to give up to have the same level of utility as if the price had changed?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M9281025

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