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

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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