1. A consumer in a two-good economy (x1 and x2) with prices pi and p2 and utility equal to u faces the Cobb-Douglas expenditure function: (1-a) е(p, и) — ирір2 where a E (0, 1). 1.1 Derive the indirect utility function v(p, y) for this consumer. 1.2 Derive the Hicksian demand functions for the consumer r: (p, u). 1.3 Suppose you know that expenditure share for the ith good, wi, is defined as: P;a# (p, u) е(p, и) Wi = Using the Hicksian demand functions derived in part 1.2 above, along with the expenditure function provided at the beginning of the question, find an expression for wi + wz and interpret this expression within the context of the Cobb-Douglas framework.

1. A consumer in a two-good economy (x1 and x2) with prices pi and p2 and utility equal to u faces the Cobb-Douglas expenditure function: (1-a) е(p, и) — ирір2 where a E (0, 1). 1.1 Derive the indirect utility function v(p, y) for this consumer. 1.2 Derive the Hicksian demand functions for the consumer r: (p, u). 1.3 Suppose you know that expenditure share for the ith good, wi, is defined as: P;a# (p, u) е(p, и) Wi = Using the Hicksian demand functions derived in part 1.2 above, along with the expenditure function provided at the beginning of the question, find an expression for wi + wz and interpret this expression within the context of the Cobb-Douglas framework.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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