0.1 0.9 Jordan has the utility function u(x1, x2 =X1 X2 As this is a Cobb-Douglas function, we know that 10% of Jordan's income will be spent on good 1, and 90% of his income will be spent on good 2. We also know that the demand functions associated with this utility function are: m x₁=0.1 and x2=0.1 P1 m P2 Assume that Jordan is initially endowed with 200 units of good 1. If p₁ 5then what is the value of Jordan's endowment? What is Jordan's gross demand of good 1 when P₁ =5? What is Jordan's net demand when p₁ =5? Is Jordan a net buyer or seller? What happens to your answers to (a), (b), and (c) when the price of good 1 increases to 8? Explain your answer (hint: consider what happens to the demand for good 2).

0.1 0.9 Jordan has the utility function u(x1, x2 =X1 X2 As this is a Cobb-Douglas function, we know that 10% of Jordan's income will be spent on good 1, and 90% of his income will be spent on good 2. We also know that the demand functions associated with this utility function are: m x₁=0.1 and x2=0.1 P1 m P2 Assume that Jordan is initially endowed with 200 units of good 1. If p₁ 5then what is the value of Jordan's endowment? What is Jordan's gross demand of good 1 when P₁ =5? What is Jordan's net demand when p₁ =5? Is Jordan a net buyer or seller? What happens to your answers to (a), (b), and (c) when the price of good 1 increases to 8? Explain your answer (hint: consider what happens to the demand for good 2).

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Concept explainers

Form Utility

The term utility in general refers to the satisfaction earned from usage of a particular product or service. Utility always plays an important role because it influences various important elements like demand & thereby the price of the good or service as well. Though utility is not easy to measure, various types of economic models can be used indirectly. There can be various types of utilities like economic utility, marginal utility, cardinal utility, form utility.

Question

0.1 0.9
Jordan has the utility function u(x₁, X2)=x₁₁¹×2.
As this is a Cobb-Douglas function, we know that 10% of Jordan's income will be spent on
good 1, and 90% of his income will be spent on good 2.
We also know that the demand functions associated with this utility function are:
x₁=0.1
m
P1
m
and x2=0.1.
P2
Assume that Jordan is initially endowed with 200 units of good 1.
If p₁ 5then what is the value of Jordan's endowment?
What is Jordan's gross demand of good 1 when P₁ =5?
What is Jordan's net demand when p₁ =5? Is Jordan a net buyer or seller?
What happens to your answers to (a), (b), and (c) when the price of good 1 increases to 8?
Explain your answer (hint: consider what happens to the demand for good 2).

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